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Studies of the Environmental Costs of

Electricity

September 1994

OTA-BP-ETI-134
NTIS order #PB95-109641
GPO stock #052-003-01393-2
Recommended Citation: U.S. Congress, Office of Technology Assessment, Studies of
the Environmental Costs of Electricity, OTA–ETI–134 (Washington, DC: U.S.
Government Printing Office, September 1994).
Foreword
s tudies of the Environmental Costs of Electricity examines studies
that assign monetary value to the environmental effects of energy
technologies. Quantitative analysis of environmental effects has
been an important feature of energy policy for several decades, and
growing numbers of studies attempt to integrate these analyses into an
overall framework that allows comparison of the environmental effects
of different technologies for generating electricity.
Because of the large size and scope of environmental cost studies,
however, they necessarily involve a large number of assumptions. These
assumptions have been the focus of contentious debate in the analytical
and policy communities. While changing a study’s assumptions can pro-
foundly affect its results, there is currently no agreement on the most ap-
propriate set of assumptions. This does not imply that all assumptions
are equally valid, but indicates that assumptions often reflect deeply held
values of participants in policy debates.
This report was prepared in response to a request by the House Com-
mittee on Science, Space, and Technology. The report examines a set of
environmental cost studies, compares and contrasts their methods and
assumptions, and discusses how they could be made more useful to fed-
eral policy makers. In contrast to other studies in this area, OTA’S report
explores the close ties between values, assumptions, and quantitative re-
sults and the implications of these ties for policymaking.
OTA appreciates the participation of many individuals without whose
help this report would not have been possible. OTA received generous
assistance from workshop participants and reviewers who offered valu-
able information and comments. The contents of the report itself, how-
ever, are the sole responsibility of OTA.

Director

...
Ill
Preject Staff
Peter Blair ADMINISTRATIVE STAFF
Assistant Director
OTA Industry, Commerce, and David Jensen Lillian Chapman
International Security Division Project Director Division Administrator

Emilia L. Govan Marsha Fenn


Program Director Office Administrator
OTA Energy, Transportation, and
Infrastructure Program
Gay Jackson
PC Specialist
Samuel F. Baldwin
Project Director
Tina Aikens
OTA Renewable Energy Project
Administrative Secretary

Iv
R eviewers
Alan Basala John Hughes Mark Sagoff
U.S. Environmental Protection Electric Consumers Resource University of Maryland
Agency Council
Robert L. San Martin
Thomas Bath Bruce Humphrey U.S. Department of Energy
National Renewable Energy Edison Electric Institute
Laboratory Kari Smith
James Kennedy Natural Resources Defense
David Boomsma U.S. General Accounting Office Council
U.S. Department of Energy
John Kennedy Eric Von Magnus
Shepard Buchanan Allied Signal Inc. Maine Public Utilities
Bonneville Power Administration Commission
Jan McFarland
Dallas Burtraw U.S. Environmental Protection Kris Wernstedt
Resources for the Future Agency Resources for the Future

Paul Carrier Rick Morgan Irvin L. (Jack) White


U.S. Department of Energy U.S. Environmental Protection Battelle Pacific Northwest
Agency Laboratories
Emily Caverhill
Resource Insight, Inc. Victor Niemeyer OTA REVIEWERS
Electric Power Research Institute
Mark Cooper Mark Boroush
Consumer Energy Council Richard Norgaard Robert Friedman
of America University of California— Gregory Eyring
Berkeley Gretchen Kolsrud
Todd LaPorte
David Dawson
Karen Larsen
Forest Policy Consultant Dale W. Osborn
Dalton Paxman
Kenetech
Steve Plotkin
Jonathan Koomey Robin Roy
Lawrence Berkeley Laboratory Robert D. Rowe Joanne Seder
RCG/Hagler, Bailly, Inc. Matthew Weinberg
Robert W. Fri
Resources for the Future

v
w orkshop Participants

Irvin L. (Jack) White Robert Costanza Richard Norgaard


(Chairman) University of Maryland University of California –
Battelle Pacific Northwest Berkeley
Laboratories Bruce Humphrey
Edison Electric Institute Richard Ottinger
Steve Bernow Pace University
Tellus Institute Alan Krupnick
Resources for the Future Mark Sagoff
Ashley Brown University of Maryland
RCG/Hagler, Bailly, Inc. Daniel Lashof
Natural Resources Defense
Dallas Burtraw Council
Resources for the Future

vi
c ontents

1 Summary 1
Studies of Environmental Costs 3
Methods for Valuing Environmental Costs 3
Assumptions in Environmental Cost Studies 5
Roles for Environmental Cost Studies in
Policymaking 6

2 Studies of Environmental Costs 9


I
The Purpose and Structure of Environmental Cost
Studies 1 0
Selected Studies 13
Comparing Studies 31

3 Methods for Valuing Environmental Costs 37


Market Valuation 38
Hedonic Valuation 38
Contingent Valuation 39 L I

Control Cost Valuation 42 I


Mitigation Cost Valuation 42
Conclusion 43

4 Assumptions in Environmental Cost


Studies 45
Issues and Underlying Assumptions 47
Frameworks 62
L J

5 Roles for Environmental Cost Studies in


Policymaking 67
Current Laws and Regulations 67
Making Studies More Useful in Federal
Policymaking 70

INDEX 75

vii
Summary

I
n the past two decades, studies of energy technologies in-
creasingly have focused on quantifying environmental ef-
fects. In particular, many studies have attempted to estimate
the environmental cost of different electricity generating
technologies —the monetary value of the environmental ef-
fects—so that environmental concerns can be incorporated more
easily into public and private decisionmaking.
These environmental cost studies have attracted the attention
of a variety of legislators and regulators. Although few measures
have been enacted with the intent of directly passing environmen-
tal costs onto consumers, several state and federal actions require
that these costs be estimated and considered by utilities. For ex-
ample, 29 states require utilities to consider environmental costs
in some way when they choose among electricity supply options,
and many other states are considering such measures. Several fed-
eral statutes also mandate that utilities or agencies estimate envi-
ronmental costs.
Credible and accurate information about environmental costs
could be a critical component of future state and federal policies.
Several new studies will be released within the next year (see
chapter 2 for details), and these new studies, as well as previously
completed studies, could help federal policy makers make choices
about the use of current electricity technologies and the level of
support warranted for new or improved technologies. They also
could allow quantification of the potential benefits associated
with electricity technologies that have fewer environmental im-
pacts (e.g., solar and wind energy) and technologies that reduce
energy use (e.g., energy-efficient appliances). This is particularly
important given that many of these alternative technologies cur-
rently cost more than traditional technologies. 11
2 I Studies of the Environmental Costs of Electricity

This report examines the methodology, findings, and implications of studies that estimate the envi-
ronmental costs of electricity production. Specifically, it:
■ explains the principles behind estimates of environmental costs and the terms used to discuss such
estimates,
m summarizes and compares existing estimates of environmental costs and the methods of arriving at
those estimates,
● characterizes and analyzes the reasons for differences in estimates, particularly the assumptions and
values that underlie different estimates, and
● discusses challenges associated with using current estimates in policymaking.

In contrast to many other reports on environmental cost studies, this report focuses on the studies’
assumptions and values. The House Committee on Science, Space, and Technology, which requested
this report, asked OTA to examine the fundamental assumptions and values that underlie debates over
environmental costs and to explore their implications for policymaking.
The study focuses on environmental cost estimates for electricity generation because this area has
produced substantial regulatory and legislative activity. It does not consider other types of costs (e.g.,
government subsidies and economic effects), nor does it consider other sectors of the economy con-
cerned with energy (e.g., transportation).l
OTA did not attempt to make its own estimates of the environmental costs of electricity. The study’s
request explicitly excluded such estimates, and OTA finds that generally accepted estimates would be
difficult, if not impossible, to achieve at this time.
In addition, this study does not discuss specific policy instruments. The use of specific policy instru-
ments is largely separate from the estimation of environmental costs. Another OTA study is currently
reviewing a variety of new approaches to environmental regulation.2

Printing Office, forthcoming),


SOURCE Office of Technology Assessment, 1994.

The Office of Technology Assessment (OTA) of electricity, or on methodologies for making


has examined several studies of the environmental those estimates. The methods of these studies, and
costs of electricity (see box l-l). This report re- the estimates themselves, vary widely. The differ-
views the studies’ results, methods, and assump- ing methods and results have produced a conten-
tions in an effort to determine whether there are tious technical debate among analysts and
generally accepted approaches to estimating envi- policymakers who wish to use the results of envi-
ronmental costs and whether the studies have con- ronmental cost studies. Many of these differences
verged upon similar conclusions. The report does can be addressed through further research and
not provide a detailed discussion of how the find- analysis. Some critical disagreements over meth-
ings of these studies might be incorporated into odology, however, mask deeper disputes over val-
policy. Where policy relevance is discussed, it is ues, basic policy goals, and the intended role of
primarily from a federal perspective. environmental cost studies. It is unlikely that
OTA concludes that no clear consensus exists these disputes can be resolved by technical analy-
on quantitative estimates of environmental costs sis or scientific research. Instead, these disagree-
Chapter 1 Summary I 3

ments are more likely to be successfully addressed m Cost estimates are difficult to combine or
through public debates in the policy arena. compare. Studies use very different methods of
This report summarizes several existing and estimating, categorizing, and reporting results.
ongoing studies, discusses several major method- These methods are so different that in-depth
ological disputes and the assumptions underlying comparison of quantitative results is extremely
them, and attempts to characterize the different difficult. In general, only broad comparisons
frameworks of assumptions. Understanding these are possible.
frameworks can help policymakers understand m Cost estimates are variable and uncertain. Esti-
both current and future studies, avoid unintention- mates made by different studies vary greatly.
ally accepting the embedded assumptions of stud- For example, cost estimates for the same ener-
ies, and make the best use of the information the gy source can vary between nearly zero and a
studies provide. value greater than current electricity prices. All
studies note that their results contain substan-
tial uncertainty. Not all studies include explicit
STUDIES OF ENVIRONMENTAL COSTS estimates of this uncertainty, but when uncer-
Environmental cost studies usually compare the tainty ranges are given, they are often as large
effects of several different energy sources (e.g., or larger than the estimates themselves. At least
coal, oil, nuclear, and solar). The studies catalog one category of costs, those associated with
the emissions from power plants (e.g., sulfur diox- global warming, is potentially large, but the
ide (S02) and carbon dioxide (C0 2) and then esti- costs are impossible to estimate with certainty.
mate the costs associated with those emissions. ● A single category of effects often dominates the
Cost estimates can be made by either: 1) evaluat- cost estimates. The studies examined by OTA
ing the health and environmental impacts from made more than 50 separate estimates of the en-
those emissions and estimating the monetary cost vironmental costs associated with particular
of those impacts or 2) examining the cost of cur- energy sources. In more than 80 percent of
rently mandated measures to control those emis- these estimates, a single category of damages
sions or to mitigate their effects. To estimate an accounted for the majority of the cost estimate.
energy source’s total environmental cost, each In one study, for example, damages associated
study adds together the damages from all environ- with S02 accounted for more than 60 percent of
mental effects attributed to a particular source. the total damages associated with one type of
OTA examined eight environmental cost stud- coal-fired power plant. This observation may
ies for this report (see table 1-1 ). The studies were facilitate the use of these studies for policymak-
selected based on their comprehensiveness, their ing because dominant effects may point to
influence, and the extent of their methodological areas where additional legislative or regulatory
discussion. Two of the studies (one sponsored by attention is warranted.
the U.S. Department of Energy and one sponsored
by New York State) are in progress and are ex- METHODS FOR VALUING
pected to be completed by the end of 1994. The six ENVIRONMENTAL COSTS
other studies had been completed by 1991. There Valuation is the process of taking an environmen-
are several other recent and ongoing studies in tal impact (e.g., number of deaths or acres of dam-
addition to those that OTA examined in detail for aged forest) and estimating a monetary value for
this request. All of these studies are discussed in that impact. Other phases of environmental cost
chapter 2. studies besides valuation (e.g., estimating long-
On the basis of a review of the methodology term health and ecological effects) are important
and estimates of these eight studies, OTA found and are often the focus of debate, but studies
that: involving these other phases have been part of
4 I Studies of the Environmental Costs of Electricity

Authors Sponsors Title Date


Resources for the Future; Oak U.S. Department of Energy; External Costs and (forthcoming)
Ridge National Laboratories Commission of the European Benefits of Fuel
Communities Cycles
RCG/Hagler, Bailly, Inc. New York State Energy Research and New York State (forthcoming)
Development Authority; Environmental
Empire State Electric Energy Externalities Cost
Research Corp.; Study
Electric Power Research Institute
Richard Ottinger et al. (Pace New York State Energy Research and Environmental Costs 1990
University Center for Development Authority; of Electricity
Environmental Legal Studies) U.S. Department of Energy
Stephen Bernow et al. (Tellus Several state energy agencies and Valuation of 1990
Institute) utility regulatory bodies (Vermont, Environmental
Massachusetts, California, and Externalities for
Rhode Island) Energy Planning and
Operations
Paul Chernick and Emily Boston Gas Co.; filed with the The Valuation of 1989
Caverhill (PLC, Inc.) Massachusetts Department of Public Externalities from
Utilities Energy Production,
Delivery, and Use
Olav Hohmeyer Commission of the European Social Costs of 1988
(Fraunhofer-lnstitute for Communities Energy Consumption
Systems and Innovation
Research, Germany)
ECO Northwest; Biosystems Bonneville Power Administration; (Several, see chapter 1983-1987
Analysis; Nero and Associates U.S. Department of Energy 2 for details)
Michael Shuman and Ralph Northwest Conservation Act A Model Electric 1982
Cavanagh (Natural Resources Coalition Power and
Defense Council) Conservation Plan for
the Pacific Northwest:
Environmental Costs
NOTE Sponsors do not necessarily endorse or agree with a study’s findings, particularly in the case of government agencies. Several other
studies exist, See chapter 2 for additional details.
SOURCE Off Ice of Technology Assessment, 1994

legislative policy debates for some time. In con- ation of environmental factors by government
trast, valuation is relatively new to the policy are- regulators. Mitigation cost valuution examines
na and deserves special attention. the cost of preventing or repairing environmental
At least five valuation methods are used in cur- damages. Details of these methods can be found
rent environmental cost studies. Market valuation in chapter 3.
uses existing market prices to estimate damages. Disputes over valuation methods mostly center
Contingent valuation elicits estimates from con- around the utility and accuracy of different types
sumers by the use of survey techniques. Hedonic of evidence. For example, some methods (e.g.,
valuation examines existing market prices to de- market and hedonic valuation) draw their in-
tect implicit valuation of environmental factors by formation from consumer choices, whereas other
consumers. Control cost valuation examines ex- methods draw information from the decisions of
isting regulatory decisions to detect implicit valu- elected and appointed government officials (e.g.,
Chapter 1 Summary I 5

control cost valuation). Analysts and others dis- sumptions matches the goals and values of most
agree strongly about the proper method of esti- parties, consensus estimates of environmental
mating environmental costs and about whether costs are not possible.
such valuation is even useful. The impact of the assumptions and values im-
plicit in different estimates is large enough that
ASSUMPTIONS IN ENVIRONMENTAL isolated quantitative estimates of environmental
COST STUDIES costs are nearly meaningless. Such estimates be-
To make quantitative estimates of environmental come meaningful only in the context of a study’s
costs, studies must make a large number of as- assumptions and of the environmental effects that
sumptions. Some of these assumptions involve are included. This conclusion indicates that iso-
valuation methods, others involve how to handle lated quantitative estimates of environmental cost
uncertainty or whether currently regulated effects studies should not be presented as the final results
should be included in cost estimates. Different as- of a study. This practice improperly focuses atten-
sumptions can include or exclude whole classes of tion only on the numerical results, rather than on
effects, and can lead to dramatically different nu- explaining those results in the context of the
merical estimates for the effects that are included. study’s assumptions.
Environmental cost studies are not the only Investigating the assumptions that underlie
type of study in which assumptions affect results; these different estimates can help explain why the
all quantitative analyses are conducted within a estimates differ and can also help to clarify broad-
general framework of assumptions and values. er debates over the environmental costs of energy.
Environmental cost studies, however, include a On the basis of the methodology of environmental
particularly large number of assumptions. At- cost studies, position papers by stakeholders, and
tempting to estimate environmental costs neces- a workshop convened for this study, OTA identi-
sarily uses the results of many other, more limited, fied several frameworks of goals and values (see
component studies—for example, studies of chapter 4 for details). These frameworks can be
emissions generation, transport, and deposition; characterized by the answers to fundamental ques-
environmental impacts; risk assessment; and eco- tions such as:
nomic valuation. Environmental cost studies in- ● What is the goal of environmental policy? Envi-
corporate the strengths and weaknesses of these
ronmental cost studies are most frequently as-
component studies. As a result, environmental
sociated with the goal of economic efficiency.
cost studies face an array of vexing problems that
Other implicit and explicit goals assumed in
have emerged from the past two decades of re-
environmental cost debates include equity, sus-
search in environmental science, social science,
tainability, and protection of health and safety.
engineering, and economics. They generally re- ● What is the role of environmental cost studies
quire a larger number of assumptions, contain
in energy policy? These studies can be used to
greater uncertainties in their results, and engender
quantify economic corrections to energy mar-
more controversy than do studies of a more lim-
kets, facilitate compensation for environmental
ited scope.
damages, or guide government regulation to
There are no obvious criteria to use in selecting
protect health or encourage sustainability.
a set of best assumptions for all purposes or for all ● How is value determined? Valuation can be
policy makers. Specific assumptions draw criti-
based on consumers acting in markets, legisla-
cism and support from different analysts, but most
tors and regulators acting in political systems,
are not obviously flawed. Instead, these assump-
scientists studying ecological systems, or gov-
tions embody different goals and values that may
ernment officials acting in legal settings.
be more or less appropriate to different purposes
and policy makers. Because no single set of as-
6 I Studies of the Environmental Costs of Electricity

Different answers to these questions lead to dif- fy regulatory benefits. EPA conceivably could
ferent assumptions about what effects to include, conduct or use many different types of studies of
how to value those effects, and how to handle un- costs and benefits. Some of these studies lack the
certainty. These assumptions, in turn, can lead to complexity of studies that assess the environmen-
widely divergent estimates of the environmental tal cost of energy, but the difficulties, challenges,
costs of electricity generation. All studies make and opportunities presented by environmental
these assumptions based on frameworks of goals cost studies may provide useful analogs for broad-
and values, and these frameworks are often the fo- er questions about the quantitative study of EPA
cus of substantial disagreement. Rather than help- regulations.
ing to resolve political and social debates, current In addition to federal policies, many state regu-
environmental cost studies often reflect different latory commissions require some quantitative or
positions in these debates. qualitative use of environmental cost estimates.
Nineteen states require utilities to consider quanti-
ROLES FOR ENVIRONMENTAL COST tative estimates of environmental costs. Require-
STUDIES IN POLICYMAKING ments in another 10 states and the District of
Given that assumptions and values are so impor- Columbia mandate the use of qualitative criteria
tant to the methods and results of environmental that attempt to account for environmental costs.
cost studies, what role can such studies serve in
developing federal policy? | Making Studies More Useful to Federal
Policymakers
| Current Laws and Regulations For federal policymakers, use of environmental
Several federal laws and regulations already re- cost studies offers both pitfalls and opportunities.
quire some examination of environmental cost. Pitfalls include the unknowing acceptance of as-
For example, consideration of environmental cost sumptions and values embedded within the stud-
is required under the Pacific Northwest Electric ies’ quantitative analysis. Opportunities include
Power Planning and Conservation Act of 1980 using environmental cost studies as a way to ex-
(Public Law 96-501). The Clean Air Act Amend- plore the importance of specific assumptions and
ments of 1990 (Public Law 101-549) require the as a way to gain useful insights into setting envi-
Environmental Protection Agency (EPA) Admin- ronmental priorities.
istrator to conduct a comprehensive analysis of
the effects of the act on the public health, econ- Moving Beyond Evaluation
omy, and environment of the United States. The In one way, at least, federal policymakers may
Energy Policy Act of 1992 (Public Law 102-486) find a mismatch between their own goals and
requires the Secretary of Energy to develop a those embodied in currently available studies of
least-cost national energy strategy that considers the environmental costs of electricity. Many of the
the economic, energy, environmental, and social assumptions in currently available studies stem
costs of various energy technologies. from an emphasis on the goals of state utility com-
Some pending federal legislation has a connec- missions. In particular, these studies often assume
tion to environmental cost issues. For example, that the important decisions involve choosing
much of the debate over whether to elevate the among available electricity generating technolo-
EPA to cabinet-level status has concerned whether gies, rather than attempting to alter the relevant
the new agency would be required to perform environmental effects of those technologies. Fed-
cost-benefit analyses of proposed regulations. eral policy often involves the latter, through laws
Some EPA regulations directly address the envi- and regulations concerning pollution control
ronmental effects of energy, and environmental technologies, mining and transportation safety,
cost studies hold the promise of helping to quanti- waste disposal, and impact mitigation.
Chapter 1 Summary I 7

One consequence of the existing focus on clearly explaining the assumptions and values that
choosing among different generating technolo- underlie the estimates of monetary damages,
gies is that studies often report aggregate values would greatly assist the federal decisionmakers
that indicate total environmental costs. Such re- who may use the studies.
sults are useful to state regulatory commissions
that wish to affect how utilities add new generat- Informing Legislative Decisionmaking
ing capacity. However, they are of limited use to At least for the near term, use of environmental
federal legislators and regulators, who have a wid- cost studies on the federal level is likely to engen-
er array of pol icy measures available. If studies are der continued disputes over methodology and re-
not relevant to the design and management of sults. As is the case with current studies, much of
electricity generating technologies, then federal the controversy over future studies will likely be
policy makers may not be able to use the studies ef- due to fundamental differences in assumptions
fectively or they may choose to ignore them en- and the associated frameworks of goals and val-
tirely. ues, rather than specific findings of a given study.
In contrast, if environmental cost studies pre- For policymakers, accepting and using the quanti-
sent disaggregated results, then they could prove tative findings of a particular study of environ-
more useful to federal policy makers. They could mental costs implies accepting the goals and
assist legislators and regulators with setting prio- values embedded in that study.
rities and designing efficient and effective regula- Some analysts believe recent studies (e.g.,
tory programs. For example, if future studies DOE/EC and New York State) are converging on
analyze and report the relative importance of dif- a common set of methods and their results should
ferent effects as prominently as current studies re- be preferred over those of other studies. In several
port total environmental costs, then future studies ways, these recent studies do represent advances
could help support priority-setting activities in over older studies because they review a larger
both regulatory programs and research and devel- body of literature, they are often more systematic
opment activities. in their survey of emissions and environmental
impacts, and several elements of their technical
Emphasizing Nonquantitative Results methodology are more sophisticated.
Environmental cost studies often focus on what However, this methodological sophistication
appears to be the “bottom line’' —the monetary may be less important than the studies’ basic as-
value of env ironmental effects. In many cases, this sumptions, many of which depend on policy goals
is the most speculative and controversial aspect of and values that are beyond the purview of ana-
the study, and effects that are not monetized are lysts. These recent studies do make a relatively
often ignored. In contrast, focusing on the earlier consistent set of assumptions. For example, these
components of the study (e.g., the emissions and studies value environmental effects using only
impacts stages) would emphasize aspects that are damage cost approaches (see chapter 3) and they
most amenable to scientific and technical resolu- employ relatively high standards of proof about
tion. what emissions and impacts should be included in
Monetization is useful, but its very nature al- environmental cost estimates. However, whether
lows the results of environmental cost studies to these assumptions represent objectively “better”
be reported in a highly aggregated form. This en- choices depends on the goals and values of policy-
courages use of the results without the full under- makers who use these studies, rather than on the
standing of the assumptions and values that opinions of analysts.
underlie them. Placing greater emphasis on re- Technical and methodological critiques of en-
porting the results of earlier phases of the analysis vironmental cost studies are important, but they
(e.g., emissions and impacts assessments), and on are not the only important critiques. A study may
8 I Studies of the Environmental Costs of Electricity

be technically excellent and still not meet the of the policy makers’ public responsibilities. In
needs of Congress and of executive branch agen- contrast, if a study’s values and assumptions are
cies. If a study’s values and assumptions differ made clear and match those of the relevant de-
radically from those of the relevant policy makers, cisionmakers, then the study may be able to pro-
then they may reject the study on those grounds vide valuable insights of a sort that other analyses
alone. Such an action would not be “ignoring sci- cannot.
ence” but would constitute the legitimate exercise
Studies of
Environmental
Costs 2

M
uch of the technical debate over the environmental costs
of electricity concerns a set of quantitative studies.
These studies were conducted mostly within the past
two decades, and they attempt to evaluate the environ-
mental costs associated with different electricity generating
technologies. The studies serve as focal points for discussion.
Their methodology, assumptions, results, and recommendations
are being examined and challenged by various stakeholders.
In many cases, the methods and assumptions of these studies
reflect the underlying values of the analysts who conduct the stud-
ies and the groups that sponsor them. These values often lie at the
heart of disagreements over estimates of environmental costs.
Understanding the technical methodology and assumptions of
environmental cost studies can help to clarify the values that are at
issue.
This chapter covers three areas. First, it discusses the general
structure and purpose of environmental cost studies. Second, it
summarizes the history and quantitative conclusions of a selected
group of studies. Third, it compares and contrasts the selected
studies in an effort to identify similarities and differences.
This chapter does not provide a detailed explanation of the
methodological issues surrounding environmental cost studies or
a detailed analysis of which methods are more or less appropriate.
This report focuses on different issues—the values and assump-
tions that underlie estimates of environmental costs and the im-
plications for using these studies in policymaking. These topics
are discussed at greater length in chapters 3 and 4.

|9
10 I Studies of the Environmental Costs of Electricity

THE PURPOSE AND STRUCTURE OF from mining operations) of several energy sources
ENVIRONMENTAL COST STUDIES (e.g., coal, nuclear, and solar), and applies the
Environmental cost studies are a relatively recent same general methods to each source. The cost of
phenomenon. l The earliest studies that compared each effect is quantified using a monetary value
several energy sources date from the 1970s, but and then, for each source, the monetary values are
nearly all studies of current interest date from the added together to estimate the total cost of the en-
1980s and 1990s. vironmental effects associated with that energy
Many other studies exist that analyze other source.
types of costs (see box 2-1), but particular atten- Environmental cost studies generally make es-
tion has focused on the environmental costs of timates for several electricity generating technol-
electricity. One reason is that such studies have a ogies, including coal, nuclear, natural gas, oil,
built-in audience of government officials who reg- hydroelectric, solar, and wind. 2 In addition, sever-
ulate the environmental effects of electricity gen- al forms of each technology are often evaluated.
eration at both the state and federal levels. State For example, fossil fuel plants may use different
and federal agencies have funded several studies, technologies for pollution control, and there are
and many states have set policies based on the several approaches to generating electricity from
studies’ results. Another reason is that, to conduct solar energy. Because each of these technologies
an environmental cost study, a large body of scien- can produce different environmental effects, stud-
tific research on environmental effects must exist ies often treat them separately.
or must be created. Such an extensive base of re- Environmental cost studies trace environmen-
search may not exist in other areas. tal effects through at least three related stages (see
Environmental cost studies are structured to fa- figure 2-1):3,4
cilitate comparison of energy sources by using ● Identifying emissions—the environmental re-
monetary values to summarize the environmental leases of byproducts of generation and use of
effects of each source. A study examines a range electricity. For example, air emissions from
of environmental effects (e.g., health impacts of
air pollution and ecological damage resulting

IFor a genera] in~~uction, S= Harold M. Hubbard, “The Real Cost of Energy,” Scientific American, April 1991, pp. 36-42. For a more
in-depth treatment, see Temple, Barker & Sloane, Inc. and Electric Power Research Institute, Environmental Externalities: An Overview of
Theory andl%wfice, CU/EN-7294 (Palo Alto, CA: May 1991). For a technical introduction to economic theory and practice of environmental
cost studies, see G.M. Brown, Jr. and J.M. Callaway, U.S. National Acid Precipitation Assessment Program, “Report 27: Methods for Valuing
Acidic Deposition and Air Pollution Effects,” Acidic Deposition: State of Science and Technology, Volume IV: Control Technologies, Future
Emissions, and Eflects Valuarion (Washington, IX: U.S. Government Printing Off]ce, September 1990). For an extensive bibliography, see
Consumer Energy Council of America, Incorporating Environmental Externalities Into Utility Planning: Seeking a Cost-Effective Means of
Assuring Environmental Quality (Washington, DC: July 1993).
Zsome studies even discuss the environment costs of energy efficiency measures. For example, (ltinger mentions two possible f2ffeCt.S:
1 ) indoor air quality may decline when buildings are weatherized, and 2) increased efficiency may lower a region’s peak energy demand and
shift load from gas-fired peaking turbines to base-load coal or oil plants. Richard L. Ottinger et al., Pace University Center for Environmental
Legal Studies, Environmental Costs of Electricity (New York, NY: Oceana Publications, 1990).
sAdapted from tie discussion in: Oak Ridge National Laboratory and Resources for the Future, U.S.-EC Fuel Cycfe Study: Background
Document to rhe Approach andlssues, ORIWJM-2500 (Oak Ridge, TN: Oak Ridge National Laboratory, November 1992). Early reviews of
externality studies also explicitly cite a similar structure. For example, Holdren establishes a four-step process: 1 ) sources, 2) insults, 3) stresses,
4) consequences. John P. Holdren, Integrated Assessment for Energy-Related Environmental Standards: A Summary of Issues and Findings,
LBL-12779 (Berkeley, CA: Lawrence Berkeley Laboratory, October 1980).

‘@here is no entirely satisfactory taxonomy of externalities. They can be categorized by pollutant, by source, by impact, or by fuel cycle
phase (e.g., mining, processing, generation, use). See Andrew Stirling, “Regulating the Electricity Supply Industry By Valuing Environmental
Effects: How Much Is the Emperor Wearing,” Futures, December 1992, pp. 1024-1047.
Chapter2 Studies of Environmental Costs 111

This report focuses exclusively on the environmental costs of electricity generation, but several other
types of related studies exist. Some studies focus on nonenvironmental costs of energy. For example,
federal energy subsidies represent a nonenvironmental cost.l Tax dollars are used to pay the costs of
federal loan guarantees, energy assistance programs, research and development, energy services,
and funding of some administrative agencies. Energy consumers do not pay directly for these subsi-
dies, instead, all U.S. taxpayers bear the costs of these programs. Although nearly all taxpayers use the
energy sources affected by federal subsidies (and vice versa), users do not pay for those subsidies in
proportion to the amount of energy they use, Other nonenvironmental costs include induced public ex-
penditures (e.g., defense costs) and economic effects (e.g., production, employment, and trade bal-
ance).
Several other studies examine benefits as well as costs.2 For example, energy generation facilities
can increase employment. Whether an effect is a cost or a benefit can depend on factors other than the
effect itself. For example, additional jobs created by an electricity generating facility could be an eco-
nomic benefit to an area with high unemployment. Alternatively, that same job creation could be a cost
to an area with labor shortages. 3
Finally, some studies focus on topics other than electricity. For example, a number of studies ex-
amine various costs of transportation that may not be completely included in prices (e.g., subsidized
parking and roads, vulnerability to oil supply disruptions, congestion, and accidents).4 Some of these
effects are energy-related (e. g., vulnerability to oil supply disruptions), but most of the effects examined
by these other studies have little direct bearing on electricity generation.

Iu s, D~p~~tnlent of Energy, Energy Information Administration, Federa/ Errer~ Subsidies. Direct and /ndlrect /ntefVent/ons in
Energy Markets, SR/EMEU/92-02 (Washington, DC, November 1992); and Douglas N. Koplow, Federa/ Energy Subsidies” Ener~,
Envwonmenta/, and Fisca//mpacts (Washington, DC Alliance To Save Energy, April 1993).
~he terms costs and benefits are used ddferently in different contexts, Deaths attributable to air pollution can be termed a cost of
energy generahon, preventmgthose deaths can also be termed a benefit of airpollutlon regulations. This report generally conforms to
the first usage
sAjay K s~nghl, “should Economic impacts @ Treated as Externalities?” The E/ecfricity ~Ourna/, March 1 ~1 i PP 54-59
AU s Congress, Office of Technology Assessment, Saving Eneqyin the U.S. Transportation System, OTA-ETI-589 (wastWXon,
DC U S Government Prlntmg Office, July 1994), U S Congress, Congressional Research Serwce, “TheExternal Costs of 011 Used m
Transportahon,” June 3, 1992; James J. MacKenzie et al., The Going Rate What/? Real& Costs To Drive (Washington, DC: World
Resources Institute, June 1 !392), David L, Greene and Paul N. Lelby, The Socia/Costs to the U.S. of the Monopohzationof the Wor/d Oi/
Market, 1972-1991, ORNL-6744 (Oak Ridge, TN Oak Ridge National Laboratory, March 1993), and Peter Miller and John Moffet, The
Price oftvfobhf-y Uncovenng the Mdden Costs of Transportation (New York, NY: Natural Resources Defense Council, October 1993).

SOURCE Office of Technology Assessment, 1994

burning fossil fuels include S0 2, C02, and par- ■ Evaluating damages-the monetary value of
ticulates. See table 2-1 for additional examples. impacts. To the extent that environmental cost-
● Identifying and evaluating impacts—the physi- ing focuses on reducing all environmental im-
cal or socioeconomic effects of emissions on pacts to a single scale (e.g., dollars), evaluating
human health (e.g., cancer and emphysema), damages becomes a necessary step in the analy-
property (e.g., loss of commercial fishing or sis.
erosion of stonework by acid rain), and ecolog-
ical systems (e.g., decreases in biodiversity).
See table 2-1 for additional examples.
12 I Studies of the Environmental Costs of Electricity

Emissions Impacts Damages

I Oil
/
Coal
/
Human
Emissions health
2
SO 2: Xx,xx
CO : XxXx . . .

... ... ...


... ... ... ... ...

Total:

NOTE: This figure does not show the process for studies that relyexclusivelyon damage costing approaches (see chapters3 and 4 foradescription)
It also does not show the process of analyzing whether some damages are included in current electricity prices, a step that most existing studies
have not taken.
SOURCE Office of Technology Assessment, 1994
Chapter2 Studies of Environmental Costs 113

with a lost forest ecosystem can be valued by sur-


veying nearby residents who use the forest for rec-
Emissions reation (see figure 2-l). It is not always possible
Air emissions: SOX, NOX1, COX, particulate, to attach monetary damages to impacts. Some im-
trace elements, air toxics pacts are left out of damage estimates either be-
Waste generation: Toxic, radioactive, solid, liquid
Radiation
cause estimating damages is too difficult or
Electromagnetic fields (EMF) because the damages are assumed to be negligible.
Thermal Although these three stages are common to
Noise many studies, they are far from universal. First,
Pesticide use around power lines
some analysts advocate adding another stage to
Runoff from mining, processing, and fuel storage
environmental cost studies-evaluating whether
Impacts damages represent an economic externality (see
Human deaths and illness: accidents, cancer, box 2-2). They argue that merely assessing dam-
respiratory illness, acute poisoning ages provides only part of the information that is
Reduced production of crops, timber, or fisheries
Degradation of structures from atmospheric pollutants
important for policymaking. Second, some envi-
Lost recreational opportunities ronmental cost studies do not derive damages
Degraded visibility based on impacts, but instead make damage esti-
Loss of habitat and biodiversity mates based on existing legislative, regulatory,
Use of land, water, and minerals
and judicial decisions. These valuation methods,
NOTE The lists are not comprehensive Not all impacts are tied to
emissions or pathways.
referred to as control cost methods, are covered in
SOURCE Office of Technology Assessment, 1994
more detail in chapter 3.

Environmental cost studies use emissions to SELECTED STUDIES


estimate impacts. Emissions travel through path- OTA selected eight environmental cost studies to
ways to create an environmental impact. For ex-
examine for this report (see tables 2-2 and 2-3).
ample, some studies estimate trace emissions of
There are several other recent and ongoing studies
S 02 through the pathway of acid rain to the in addition to those that OTA examined in detail
eventual environmental impacts on forest ecosys- (see box 2-3). The eight selected studies demon-
tems (see figure 2-l). In addition to emission-re- strate both the promise and problems of environ-
lated impacts, studies make estimates of impacts mental cost studies. The studies were selected
that arise independent of emissions. For example,
based on the following criteria:
some accidental deaths and injuries result from
coal mining. Comprehensiveness: Each study covers a range
Next, environmental cost studies use impacts of energy sources and environmental effects.
to estimate monetary damages. Impacts are con- lnfluence: Each study continues to influence
verted to damages through a process of valuation. current thinking of analysts and decisionmak-
For example, the monetary damages associated ers. 5

5For ~xample, one study (Inhabel-, 1978) was excluded on this bask. The Inhaber report has been strOnglY criticized for a variety of e~ors
(e.g., Holdren, 1979) and has little influence on current thinking. Herbert Inhaber, Risk of Energy Production, AECB-I 119/REV-2 (Ottawa,
Canada: Atomic Energy Control Board, November 1978); and John P. Holdren et al., Risk of Renewable Energy Sources: A Critique of the ln-
huber Report, ERG 79-3 (Berkeley, CA: University of California, Energy and Resources Group, June 1979).
14 I Studies of the Environmental Costs of Electricity

Economists have devised a formal theory of environmental costs, They define some environmental
effects as externalities-costs imposed on society that are not included in the prices of the goods or
services. These costs are external, or outside, the existing system of energy pricing, By adding exter-
nalities to the market costs of energy, an analyst can estimate the total cost or social cost of energy.
Some externalities have been avoided through environmental controls. Many environmental effects
are well documented and have resulted in environmental statutes, such as the Clean Air Act, Because
there are serious consequences for violating the statutes, utilities have installed pollution control equip-
ment to control emissions. Some of the cost of this equipment is passed on to consumers.
Other externalities have been included-or internalized—-in energy prices. For example, many ana-
lysts believe that wages in some industries (e.g., mining and construction) compensate workers for the
relatively higher risks they may bear. Wages of workers in these industries are included in the market
prices of energy, Other examples include settlements mandated by court verdicts in cases of environ-
mental damage and the costs of purchasing S0 2 emissions permits under the Clean Air Act. These
costs are incorporated into prices and thus partially or completely internalize the externalities,
Some environmental effects are not considered to be externalities. Environmental effects may remain
even after an externality has been fully internalized. For example, suppose a power plant releases an
air pollutant that is currently unregulated. If the pollutant has an environmental cost of $5 per ton, one
way of internalizing these costs is to charge utilities $5 for every ton of the pollutant their plants emit.
Such a tax would cause utilities to install pollution-control equipment-up to the point that the equip-
ment costs more than the emissions it prevents, Some residual emissions would remain because they
are too costly to prevent. At this point, it is cheaper for the utility to pay the tax than to control the re-
maining emissions.
Some critics of applying environmental costs argue that current regulations completely internalize
the environmental costs for many pollutants. If regulations implicitly or explicitly balance social costs
and benefits, then emissions have been reduced to an “optimal” level and the costs of that reduction
are passed on to energy consumers. If regulations do not accurately balance social costs and benefits,
then some environmental externalities may remain (if standards are set too low) or an economic ex-
ternality may be created (if standards are set too high).
However, other analysts point out that, even if existing regulations balance costs and benefits, the
remaining emissions still may represent an externality. Consider two different methods of reducing emis-
sions of a pollutant to the same level. One method is an emission tax, set at a level equal to the margin-
al damages caused by the pollutant. ’ Under this method, a utility will: 1) reduce emissions up to the
point where the cost of control is equal to the cost of the tax, and 2) pay the tax on the remaining emis-
sions. The utility either eliminates emissions or pays for the damages those emissions cause, An alter-
native method of regulating a pollutant is a mandated cap on emissions, set so marginal costs and
benefits are equal. Under this method, a utility will reduce its emissions to the mandated level, In con-
trast to the first method, the utility will not incur any costs for its remaining emissions. Under this meth-
od, the utility eliminates some of its emissions, but does not pay for the damages caused by the remain-
ing emissions. In the latter case, the damages represent an externality.

IThe term margjna/damages refers to the damages associated with the “next” quantity of pollutant, rather than theaverage dam-
ages associated with allprevious quantities. Because thecostsand benefits of controlling emissions of pollutants can change with the
amount already controlled, It is important to examine margina/, rather thanaverage, values See chapter 4 for additional explanation,
Chapter2 Studies of Environmental Costs 115

Some environmental effects of energy remain largely unregulated. If the environmental damages
from such pollutants exist, they represent clear examples of externalities. For example, the C0 2 emis-
sions of electric utilities are thought to contribute to global warming, but these emissions are not regu-
lated on the federal level, Several state public utility commissions (PUCs) have recognized the potential
of future damages associated with C02 emissions as an externality, and they require that utilities con-
sider C02 emissions during new capacity planning. To the extent that global warming is a serious envi-
ronmental threat, unregulated C02 emissions represent an externality-a cost of energy use not in-
cluded in the market price.

SOURCE Office of Technology Assessment, 1994.

• Methodological discussion: Each study pre- EC) are due to be completed in late 1994. In the
sents a substantive discussion of the methods intervening years, there have been new devel-
used to create its estimates.6 opments in valuation methodology, available
data, and understanding of pollutant emissions,
Despite these similarities, the studies also dif-
transport, and health effects.
fer in many respects:
Size and complexity: Some studies are relative-
Analysts and sponsors: Groups that conducted ly short and simple (e.g., Shuman and Cava-
studies include academic groups, consulting nagh’s estimates are presented in less than 60
firms, research organizations, environmental pages). Others are quite long and complex
groups, and government laboratories (e.g., re- (e.g., Pace’s analysis runs more than 700
spectively, Pace University Center for Envi- pages).
ronmental Legal Studies, RCG/Hagler Bailly Energy sources: Some studies deal only with
Inc., Resources for the Future, Natural Re- fossil fuels (e.g., coal, oil and natural gas). Oth-
sources Defense Council, and Oak Ridge Na- er studies estimate costs for a range of other
tional Laboratory). Sponsors include utilities, sources (e.g., nuclear, solar, wind, biomass) as
state governments, citizens’ groups, and feder- well as energy -efficiency measures.
al agencies (e.g., respectively, Boston Gas Co., Methods: Methods vary widely among studies
New York State, Northwest Conservation Act (this topic is dealt within greater detail in chap-
Coalition, and the U.S. Department of En- ters 3 and 4).
ergy). Environmental: effects: The studies do not all
Age: The oldest study was published in 1982. cover the same environmental effects. Some
The newest studies (New York State and DOW studies deal almost exclusively with air emis-

6For ~xamp]e, one frequently ~jted ~t”d~ (S~hj]~rg et al., 1989) was excluded on his basis. ne s~dy cited ~d compared a number of
estimates, but did not contain extensive methodological discussion of its own. Gayatri M. Schilberg et al., “Valuing Reductions in Air Emissions
and Incorporating Into Electric Resource Planning: Theoretical and Quantitative Aspects,” California Energy Commission Docket 88-ER-8,
JBS Energy, Inc., report prepared for the Independent Energy Producers, Sacramento, CA, Aug. 25, 1989.
.

Name Date Authors Sponsors Comments


U.S. Department of Energy (forthcoming) Resources for the Future U.S. Department of Energy; Unfinished. Resources:
(DOE) and Commission of Oak Ridge National Laboratories Commission of the European $3 million and 36 months.
the European Communities Communities
(EC)
New York State (forthcoming) RCG/Hagler, Bailly, Inc. New York State Energy Research Unfinished. Resources: $1.75
and Development Authority; million and 36 months. Will
Empire State Electric Energy rely partially on DOflEC
Research Corp. results.
Electric Power Research Institute
Pace 1990 Richard Ottinger, et al. New York State Energy Research
Pace University Center for and Development Authority;
o
Environmental Legal Studies U.S. Department of Energy
Tellus Insitutute 1990/1991 Stephen Bernow et al. Several state energy agencies Limited to air emissions of
Tellus Institute and utility regulatory bodies fossil fuels. Specific to
(Vermont, Massachusetts, California and Northeastern
California, and Rhode Island) Us.
Chernick and Caverhill 1989 Paul Chernick and Emily Caverhill Boston Gas Co.; filed with the
PLC, inc. Massachusetts Department of
Public Utilities
Hohmeyer 1988 Olav Hohmeyer Commission of the European Specific to the former Federal
Fraunhofer-lnstitute for Systems Communities Republic of Germany.
and Innovation Research,
Federal Republic of Germany
Bonneville Power 1983-1987 ECO Northwest Bonneville Power Administration; Seven studies, each on a
Administration (BPA) Biosystems Analysis U.S. Department of Energy different source (e.g., coal,
Nero and Associates nuclear).
Shuman and Cavanagh 1982 Michael Shuman and Ralph Northwest Conservation Act Specific to Northwest U.S.
Cavanagh, Natural Resources Coalition
Defense Council
NOTE’ Names reflect terms commonly used to refer to the study in subsequent literature. Sponsors do not necessarily endorse or agree with a study’s findings, particularly in the case of
government agencies Studies were selected based their comprehensiveness, influence, and methodological discussion. Several other studies exist that do not meet one or more of OTA’S
selection criteria. See box 2-3 for recent studies not reviewed in this report.
SOURCE. Office of Technology Assessment ,1994
DOE-EC Nevv York State Chernick and Shuman and
(unfinlshed) (unfinished) P a c e Tellus Caverhill Hohmeyer BPA Cavanagh
Sources coal coal (4) coal (4) coal (4) coal (4) fossil fuels coal (2) coal
monetized oil oil (3) oil (4) oil (7) oil (4) nuclear oil nuclear
natural gas natural gas (3) natural gas (3) natural gas natural gas (4) solar (PV) natural gas wind
nuclear nuclear (2) nuclear (3) wind nuclear solar (hot water)
solar (PV) biomass solar biomass efficiency
wind MSW wind MSW
hydroelectric hydroelectric (2) biomass geothermal
biomass wind efficiency solar
conservation solar (2) (central)
wind
hydroelectric
Sources — demand-side waste-to-energy — — — — —
discussed, management hydroelectric
but not geothermal
monetized
Emissions (not available) so 2 Sox SO 2 s o2 air pollutants (varies) air pollutants
with NOX NOX NOX NOX c o2 c o2
monetized particulate c o2 N20 c o2 nuclear radiation
impacts nitrates particulate c o2 CH4 accidents nuclear
lead radiation co marine oil spills indust. accidents
mercury nuclear particulate accidents indust. accidents
ozone accidents volatile noise transp. accidents
M
acid aerosols noise organics
air toxics
water pollution
radiation
solid waste
o
Monetized (not available) human health human health (not human health human health (varies) human health
impacts property property applicable) property property property
damage damage damage damage damage
crop damage global warming global warming global warming global warming
fisheries damage crop damage ecosystem ecosystem proliferation
land use land use damage damage
visibility visibility crop damage land use
livestock
timber
visibility

DOE-EC New York stats Chernick and Shurnan and
(unfinished) (unfinished P a c e Tellus Caverhill Hohmeyar BPA Cavanagh
Effects (not available) energy security acid rain; water — particulate; — (varies) —
quantified use and pollution;
but not thermal pollution;
monetized land use; solid
waste; methane;
Effects noted (not available) C0 2 ecosystem water air toxics; carbon species loss; (varies) water
but not effects; pollution, monoxide; ozone; routine nuclear consumption;
quantified non-routine noise, traffic electro-magnetic emissions; recreation losses;
nuclear fields; herbicide damage to fish and wildlife
emissions; use on historical mortality;
damage to transmission monuments; aesthetic
historical rights-of-way; production of damage;
monuments; land use; waste intermediate transmission and
livestock; disposal; water goods used in distribution
forestry; pollution; thermal energy
electro-magnetic pollution; N20; generation;
fields indoor air impacts of stages
pollution of fuel cycle
besides
generation
Stages or emphasis on mining generation generation generation generation (varies) extraction
activities generation fuel processing decommissioning (air transportation
monetized transportation emissions) generation
generation
Valuation (damage cost) (damage cost) market control cost market market (varies) market
methods contingent mitigation control cost hedonic hedonic
hedonic cost mitigation cost mitigation cost control cost
mitigation cost

NOTES: Numbers m parentheses in “Sources” indicate the numtxx of different systems within the general source category that were considered (e.g., “Coal (3)” indicates that the study
estimated environmental costs for three different types of coal plants). When effects are listed as “quantified but not monetized, ” monetization may have been discussed, but the study
produced no specific monetization estimate. Not all emissions, impacts, or effects were necessarily estimated for all energy sources, The Pace study discusses hydroelectric, but does not
estimate monetized environmental costs for this source. Information in some studies had to be adapted to fit the structure of this chart. Valuatlon techniques based on damage costs include
market, contingent, and hedonic valuation. Human health includes both public and occupational impacts. Some studies estimate nonenvironmental costs such as subsidies and macroeco-
nomic effects; these are not included in this chart. The source listed as “efficiency” denotes several different approaches; Pace evaluated demand-side management; Shuman and Cava-
naugh evaluated household weatherization. Valuation methods are discussed in greater detail in chapter 3.
SOURCE: Office of Technology Assessment, 1994.
Chapter2 Studies of Environmental Costs 119

The following studies were identified in the course of OTA’S analysis but are not extensively reviewed
in the body of this report Each is briefly discussed below and its Implications for the report are ex-
plored

Studies
Nevada: These two studies were prepared by National Economic Research Associates, Inc. (NERA)
for two Nevada utilities (Sierra Pacific Power Co, and Nevada Power Co ),1 The studies estimate envi-
ronmental costs for five conventional air pollutants (PM-1 O, NOX, SOX, VOC, CO). In addition, estimates
are made for environmental costs associated with four greenhouse gases (CO 2, CO, methane, and
N20) These latter estimates are based on estimates made by other studies and the reports note they
are highly speculative. All estimates are given in terms of dollars per pound of pollutant. The study does
not derive overall environmental costs associated with particular power or plant types. In this way, the
Nevada studies differ from the studies reviewed in the body of the report.
Australia: This study was prepared by RCG/Hagler, Bailly, Inc. and SRC Australia Pty Ltd. as part of
a larger project to evaluate and develop externalities policy for Victoria, a province in Australia. 2 The
project was commissioned by the Victorian Department of Energy and Minerals and also sponsored by
the Commonwealth Department of Environment, Sport and Territories, the State Electricity Commission
of Victoria, the Gas and Fuel Corp. of Victoria, and the Renewable Energy Authority Victoria. Environ-
mental cost estimates were made for particulate, nitrogen oxides, sulfur dioxide, ozone, air toxics,
wastewater discharge, solid waste, and greenhouse gases. Estimates also were made of the socioeco-
nomic benefits. The estimates are specific to the Latrobe Valley, a particular geographic region in Victo-
ria, Although the report focuses on estimates in terms of dollars per pound of pollutant, the costs of one
specific power plant are provided.
Wisconsin/Minnesota: These two studies have been prepared by RTI and NERA for U.S. utilities in
Wisconsin and Minnesota. In both cases, the studies have not been made public by their sponsors, due
to their use in pending rate cases before state regulatory commissions. They will be released by the
end of 1994.
California Energy Commission: For several years, the California Energy Commission (CEC) has
sought to quantify environmental costs of constructing new generating facilities. These analyses have
been part of the Energy Report process, a formal process that includes adopting environmental cost
estimates to be used for energy planning. The 1992 Energy Report process used values based on esti-
mates made by Regional Economic Research, Inc. This research recently has been compiled into a
single document.3

1 Nahonal Economic Research Associates, Fma/ Repofl. Externa/ Costs of E/ectric Utility Resource Se/ection m Nevada, report
prepared for the Nevada Power Co (Cambridge, MA March 1993), National Economic Research Associates, Fina/Report ExZerna/
Costs of Hectric UtI/W Resource Se/ecflon m Northern Nevada, report prepared for Sierra Pacific Power Co (Cambridge, MA De-
cember 1993)
2 RcG/Hag@ Ba(lly, Inc and SRCAustralla Pty Ltd., Extema/ity Po/icy/3eve/opn?errtProject” Energy Sectoc cOfrSUftantS’sU~Ma-
ry Reportfor the Uctorlan Study (East Melbourne, Victoria Department of Energy and Minerals, October 1993)
3 Mark A Thayer et al , Regional EconomicResearch, “The Air Quality Valuation Model, ” draft report, Apr 21, 1994

(continued)
20 I Studies of the Environmental Costs of Electricity

Implications
The Nevada, Australia, Wisconsin, Minnesota, and CEC studies are not discussed elsewhere in this
report. In the case of the Wisconsin and Minnesota studies, they could not be discussed because suffi-
cient information was not available, In the case of the Nevada, Australia, and CEC studies, they provide
only limited results. The Nevada studies provide cost estimates for air emissions only, and do not pro-
vide comparative figures for different types of power plants. The Australia study provides estimates for a
more comprehensive set of effects, but only applies those figures to evaluating the overall costs of a
single type of plant (a coal-fired power plant). The CEC study provides estimates only for air emissions
and only for a limited number of generating technologies that are being considered in California.
Results from these newer studies do not alter OTA’S overall findings, The estimates of environmental
cost studies still vary widely, depending on the values and assumptions embedded within the studies.
Differences in these values and assumptions are unlikely to be resolved by technical studies, Accepting
the results of a particular study involves the implicit or explicit acceptance of a large set of assumptions
about what effects to include and how to value those effects,
Results of these newer studies confirm several of OTA’S findings. First, their cost estimates are gen-
erally far lower than many previous studies. The two Nevada studies make cost estimates associated
with different air emissions that are between 30 percent and less than 1 percent of similar cost esti-
mates of the Tellus and Pace studies. Similarly l the Australia study estimates the environmental cost of
an existing coal plant as between 0.0013 and 2.3 cents/kWh, with a central estimate of 0.0020 cents/
kWh. By comparison, the Tellus and Pace studies make estimates ranging between 3 and 10 cents/
kWh. These results reinforce the conclusion that cost estimates are extremely variable. Second, results
of these newer studies differ from results of other studies in ways discussed in chapter 4. In comparison
with many other studies, these newer studies are more restrictive in the categories of costs that are
included and in how those costs are valued. Consequently, their cost estimates are lower than those of
many earlier studies,

SOURCE. Office of Technology Assessment, 1994,

sions of fossil fuels, others include emissions such as flora, fauna, human, and climate im-
such as oil spills and impacts such as nuclear pacts (e.g., Hohmeyer).
war. 7 Technology specificity: Some studies group a

Categorization of effects: Several of the studies number of different technologies into a single
categorize environmental effects by emissions, category. For example, Hohmeyer’s study pro-
presenting results for S0 2, C02, NOX, and other duces only a single estimate of environmental
emissions and then adding them to obtain over- costs for all fossil fuels. In contrast, other stud-
all estimates of environmental costs (e.g., Pace, ies (e.g., Pace, Chernick and Caverhill) differ-
Tellus, and Chernick and Caverhill). Other entiate estimates based on generation tech-
studies categorize effects by type of impact

7one Swdy (shurn~ ~d cav~agh) includes tie risk of nuclear war in its high-end estimates of environmental CONS associated wi~ nu
-

clear power. They contend that use of nuclear power increases the proliferation of nuclear weapons, and proliferation increases the risk of nu-
clear war. Michael Shuman and Ralph Cavanagh, A Model Conservation and Electric Power flanfor the Pacijic Northwest, Appendix 2: Envi-
ronmental Cosfs (Seattle, WA: Northwest Conservation Act Coalition, November 1982).
Chapter2 Studies of Environmental Costs 121

nology (e.g., oil combustion turbine) and by the Additional discussion of methodological is-
sulfur content of fuels. sues is presented in chapters 3 and 4. The studies
Location specificity: Some studies are specific reviewed below are used to illustrate that discus-
to a particular region of the country, whereas sion.
others are intended to be more general. Highly
specific studies calculate impacts based on as- | Department of Energy/Commission of
sumptions about population densities, particu- the European Communities
larly sensitive or resistant ecosystems, or
The DOE/EC study is a major ongoing study initi-
transport or deposition of pollutants. Several
ated in February 1991 by the U.S. Department of
studies have chosen specific sites to evaluate,
Energy (DOE) and the Commission of the Euro-
in order to be able to make specific assumptions
pean Communities (EC). The two organizations
about the exposed population and the surround-
agreed to support a study to develop a comparative
ing ecological conditions.8~9
analytical methodology and the best range of esti-
Despite these differences, it is tempting to look mates of external costs for11 eight fuel cycles and
for common conclusions, or to average numerical four conservation options. The eight fuel cycles
results, in an effort to obtain conclusions with are coal, oil, natural gas, uranium, biomass, hy-
greater validity than those of a single study. How- droelectric, photovoltaic, and wind. The study is
ever, the differences among the studies make it expected to conclude in late 1994.
difficult to compare their results in a meaningful Responsibilities for the analytical work have
way. Taken together, these studies point more to- been split between U.S. and European research
ward the diversity of approaches to evaluating teams. The teams share lead responsibilities for
environmental costs than toward common conclu- the nuclear study. The U.S. leads the coal, oil, nat-
sions. ural gas, biomass, and hydroelectric studies. The
Each study is discussed briefly below. Each EC leads the conservation, photovoltaic, and wind
completed study is accompanied by a table pre- studies. DOE’s portion of the study was con-
senting its quantitative results. The results are pre- tracted to Oak Ridge National Laboratory
sented first in a way that is as close to the original (ORNL) and Resources for the Future (RFF). 12,13
study as possible—the cost figures have not been The EC organized a similar study team.
rounded or recalculated. 10 In addition to the origi- In November 1992, the U.S. contractors issued
nal figures, a set of adjusted figures in 1990 dol- a report that summarized progress to date and de-
lars is given for each study to facilitate tailed modifications made to the initial DOE/EC
inflation-adjusted comparisons. agreement. 14 The 1992 report remains the only

8For ~xamp]e, the studies by DO~EC and BpA.


9For ~ extensive discus~i~n of this issue, and approaches to extending findings from one ]Ocation to other ]Ocations, see AlaJI J. Krupnick,
“Benefit Transfer and Valuation of Environmental Improvements,” Resources, vol. 110, winter 1993, pp. 1-7.
IOsom ~alyst~ have recalculated cost estimates s. mat they refer to a ~t of standard power plants. NO such recalculation was attempted
here. For an example of such recalculation, see Jonathan Koomey, Comparative Analysis of Monetary Estimates of External Ern’ironmental
Costs Associated With Combustion of Fossil Fuels, LBL-28313 (Berkeley, CA: Lawrence Berkeley Laboratory, July 1990).
I I’rhe Federal Energy Regulatory Commission is also a sponsor of the U.S. pOItiOn of he s~dy.
1 ZO~ Ridge National La~ratory is a federally owned, con~actor.o~ra~d laboratory. Resources for the Future is an independent nonprof-
it organization that conducts research on the development, conservation, and use of natural resources and on the quality of the environment.
13AS with most rep~s con~act~ for by ~E, tie s~dy’s conclusions will not necessarily repfeSeIlt the VieWS of itS SpOtlSO1’S.
I’$oak Ridge Nationa] Laboratory and Resources for the Future, Op. Ch., footnote 3.
22 I Studies of the Environmental Costs of Electricity

publicly available document on the DOE/EC three organizations are funding the $1.75-million
study. However, in January 1993, DOE circulated project.
a draft report for peer review. In August 1993, peer The project is managed by a five-member
review was complete and the report was returned board of representatives from the four organiza-
to ORNL and RFF for modifications. The coal- tions and one representative from Resources for
specific report is expected to be issued in Septem- the Future, an independent expert selected by the
ber 1994, with the remaining reports (on oil, four other members. The management board di-
natural gas, hydroelectric, biomass, and nuclear) rects the work of two contractors: the research
to be completed by the end of 1994.15 contractor (RCG/Hagler, Bailly, Inc.) and the
The DOE/EC study is not completed, but many coordinating contractor (Industrial Economics,
details of its methodology are available. The study Inc.).
is using damage cost approaches (see chapter The project will produce four separate reports:
3)-one of the first times damage costing has been 1) a critical review of existing research that
used exclusively in a major study of the environ- screens a large number of possible emissions and
mental costs of electricity. Its component reports impacts, 2) a recommended methodology, 3) a
plan to cover a broad range of fuel cycles and computer model and manual, and 4) case studies
stages of energy production (e.g., mining, trans- that represent applications of the model. The first
portation, use, and waste disposal). Each fuel report was completed in December 1993 and be-
cycle report will focus on one or two actual plants, came available to the public in May 1994. 17 The
in an effort to produce specific and defensible re- other reports are expected to be finished by the end
sults. of 1994.
The first report screens different possible envi-
| New York State ronmental effects for inclusion in the final com-
The New York State study is a major ongoing puter model. The report reviews a large number of
study that began in December 1991. It was under- emissions and impacts, and it categorizes them
taken in response to an order from New York Pub- based on initial judgments of the size of their asso-
lic Service Commission, and its goal is to develop ciated damages and their ability to be accurately
a methodology and computer model that will per- quantified. Later reports will concentrate on the
mit estimation of environmental costs. The model emissions and impacts judged to be both large and
will apply to new electricity generating plants, re- amenable to quantification.
licensed plants, and electricity demand manage- Among the studies reviewed by OTA, the New
ment options in the state of New York. York State study is unique because of its intended
The study is a joint effort of four organizations: output. The study will produce a software-based
the New York State Department of Public Service, model that runs on personal computers. The soft-
the New York State Energy Research and Devel- ware will permit users to modify the values of
opment Authority, the New York State electric uti- model parameters (e.g., levels of emissions and
lities through the Empire State Electric Energy costs per unit of emission) and will produce esti-
Research Corp. (ESEERCO), and the Electric mates based on those values. All other studies
Power Research Institute (EPRI). 16 The latter reviewed in this report provide only a printed

Ispaul Cmier, ~p~ent of Energy, personal communications, January, April, May, ~d JUIY 1994.
16EPRI’S ~~jcjpatjon is limited to the first phase of the study (see below).
17 RCG/Hagler, Bailly, Inc., “New York State Environmental Externalities Cost Study Report 1: Externalities Screening and Recommendat-
ions,” ESEERCO Project EP91-50, December 1993.
Chapter2 Studies of Environmental Costs 123

report with environmental cost estimates based on to be underestimates than overestimates.


a single, or at least limited, set of parameter The Pace study summarizes, critiques, and
values. 18 evaluates much of the existing literature. These
estimates are then combined to produce illustra-
I Pace tive estimates. However, the authors note that
The Pace study is one of the best known and most some of the studies they reviewed were inade-
frequently cited studies of environmental costs. quately documented and substantively deficient.
The study was prepared for the New York State The authors caution that the quantitative results of
Energy Research and Development Authority and the study should not be cited as definitive esti-
the U.S. Department of Energy, and it was pub- mates, but rather indicate the order-of-magnitude
lished in 1990.19 The study is wide-ranging, cov- of results and should be a useful starting point for
ering different energy sources (e.g., coal, oil, further research.
natural gas, nuclear, renewable, waste-to-energy
systems, demand-side management) and environ- | Tellus
mental effects (e.g., air and water pollution, global The Tellus study represents work published in
warming, acid rain, land use). The report also in- 1990 and 1991 by Stephen Bernow, Donald Mar-
cludes a brief discussion of policy tools on both ron, and Bruce Biewald of the Tellus Institute, an
the state and federal levels. independent, nonprofit research and consulting
Quantitative results of the study are summar- organization. The Tellus work is not a single
ized in table 2-4. The study concludes that envi- study, but instead is comprised of several esti-
ronmental costs associated with coal, oil, and nu- mates produced for state regulatory commissions
clear are highest, costs associated with natural gas and state energy agencies. A 1990 report summa-
are somewhat lower, and costs associated with re- rizes this previous work and describes the esti-
newable sources (solar, wind, and biomass) and mates and methodology concisely. In addition, a
demand-side management are substantially lower. 1991 journal article applies the results of the 1990
The Pace study explicitly notes several classes report to estimate overall environmental costs for
of environmental costs excluded from the analy- several combinations of generating technologies
sis, generally due to uncertainty or lack of data. and fuels.20
For fossil fuels, it excludes greenhouse gases such The study differs from other environmental
as methane and N20; air toxics; water use, land cost studies in two important respects. First, the
use, and solid waste disposal; and environmental Tellus study only provides estimates of the costs
costs associated with fuel extraction, transporta- of air emissions. Costs of other types of emissions
tion, and processing. For nuclear power, it ex- (e.g., radiation), and impacts (e.g., industrial and
cludes extraction and transportation of uranium. transportation accidents) are not estimated. Air
Due to the exclusion of these environmental costs, emissions are relevant only to the burning of fossil
the authors believe their estimates are more likely

18@e study not reviewed ~ this repofi does inC]U& a Cornpukr model: Mark A. Thayer et al., The Air Quality Valuation Model (San Diego,
CA: Regional Economic Research, Inc., Apr. 21, 1994).
Igottinger et al., op. cit., fmmote 2.

Zostephen Be~O~ ~d Dona]d M~On, valuation of Environmental Exter~/i[ies for Energy planning and Operations, May 1990 Update
(Boston, MA: Tellus Institute, May 18, 1990); and Stephen Bemow et al., “Full-Cost Dispatch: Incorporating Environmental Externalities in
Electric System Operation,” The Electricity Journal, March 1991, pp. 20-33.
24 I Studies of the Environmental Costs of Electricity

By emission type
Type cost, $/lb (1989) Cost, $/lb (1990)
SO2 2.03 2.13
Particulate 1.19 1.25
N ox 0.82 0.86
c o2 0.0068 0.0071
By plant type
Plant Cost, $/kWh (1989) Cost, ¢/kWh (1990)
Coal
Existing boiler (1 .2% S) 6.8 7.1
AFBC (1 .1% S) 3.3 3.5
IGCC (0.45% S) 2.8 2.9
NSPS 4.5 4.7
Oil
Boiler (0.5% S) 3.2 3.3
Boiler (1% S) 4.5 4.7
Boiler (2.2% S) 7.9 8.3
Combustion turbine (1% S) 3.0 3.1
Natural Gas
Existing steam plant 1.2 1.3
Combined cycle 1.1 1.1
BACT 0.8 0.8
Nuclear 2.91 3.05
Renewab/es
Solar 0-0,4 0-0.4
Wind 0-0.1 0-0.1
Biomass 0-0.7 0-0.7
Demand-side Management 0.0 0.0

NOTE: Values in 1989 dollars and cents are reported in the study. Values in 1990 dollars and cents are adjusted using the consumer price index
The values reported above for various emission types are listed by Ottinger et al. as “rough starting points”; in several cases (S02, NOX, and
particulate), the authors contendthal the damages “could be much higher.’” Values for acid deposition, electromagnetic fields, and land and water
use impacts were not estimated due to inadequate data. Most plant types for fossil fuels list the sulfur content of the fuel (e.g., 1,2% S).
Thestudyderwedvalues forvarious plant types from thevaluesfor emission types Thestudyfoundthat waste-to-energy plants were Iiketyto have
fairly large environmental impacts, but they concluded that more research was needed before a quantified estimate could be made,
KEY: NSPS = New source performance standards: IGCC = Integrated gas combined cycle: AFBC = Atmospheric fluidized bed combustion
BACT = Best available control technology
SOURCE: Richard L. Ottinger et al., Pace University Center for Environmental Legal Studies, Environmental Costs of Hectricity (New York, NY:
Oceana Publications, 1990).

fuels (coal, oil, and natural gas) and these are the Second, the Tellus study is unique because of
only sources for which Tellus generates esti- its exclusive reliance on a valuation method
mates. 21 A summary of the Tellus estimates is known as control costing.22 It derives all esti-
provided in table 2-5.

zl~spi~ ~ese lj~~tjons, tie Tellus study is an important one to consider. It strongly defends the use of control cost approaches, Md its
results have influenced the actions of several state regulatory commissions.
zz~er s~djes m~e ~cmjonal use of control cost valuation. Tellus is the only study to rely exclusively on control costing.
Chapter2 Studies of Environmental Costs 125

By emission type
southern Southern
Northeast U.S. California Northeast U.S. California
Type cost, $/lb (1989) cost, $/lb (1989) cost, $/lb (1990) cost, $/lb (1990)
NOX 3.50 131.00 3.7 137.29
S ox 0.75 37.50 0.79 39.30
Volatile organic gases 2,65 14.50 2.78 15.20
Particulate 2.00 24.00 2.10 25.15
co 0.43 0.43 0.45 0.45
c o2 0.011 0.011 0.012 0.012
CH4 0.11 0.11 0.12 0.12
N 20 1.98 1.98 2.08 2.08
By plant type
Plant Cost, ¢/kWh (1990)
coal
FGD 4.47
2.37°A sulfur 7.00
1.83°A sulfur 9.97
0.82% sulfur 6.05
Oil
Steam, 1 .5% sulfur 5.55
Steam, 1 .3% sulfur 3.92
Steam, 1 .0% sulfur 4.08
Steam, 0.75% sulfur 3.54
Steam, 0.70% sulfur 3.86
Steam, 0.30% sulfur 4.44
Combustion turbine 6.04
Natural Gas
Steam 2.37
Combustion turbine 4.22
Combined cycle 1.68

NOTE: Values by emission are from Bernow and Marron, 1990. Differences in cost estimates between the Northest United States and Southern
California result from ddferences in applicable state laws. Estimates for NO. and CO include both ambient air quality and greenhouse warming
impacts; volatwe orgaruc gases include both volatile organic compounds and reactive organic gases; particulate include both total suspended
partlculates and PM1O. Values by plant type are from Bernowet al., 1991 (table 5) and are based on power plants operating in the Northeastern
United States. FGD = flue-gas desulfurization.
SOURCES. Stephen S. Bernow and Donald B. Marron, Va/uation of Environment/ Externalities for EnergyP/arming and Operations, May 1990
Update (Boston, MA. Tellus Institute, May 18, 1990); and Stephen Bernow et al., “Full-Cost Dispatch’ Incorporating Environmental Externalltles m
Electrlc System Operation,” The Electricity Journa/, March 1991, pp. 20-33.

mates of environmental costs from the costs im- erence” of regulators—a cost that regulators are
posed by existing legislation.23 It estimates the willing to impose on utility customers to control
costs of compliance with existing regulations, and emissions. Control costing is covered in more de-
then uses these values to indicate a “revealed pref- tail in chapter 3.

23~ere iS one ~xceptionc Enviro~en~l ~osts associa~d wi~ c@ emissions were estimated using tie cost of mitigating the ChMgt?S fiOIll
global warming.
26 I Studies of the Environmental Costs of Electricity

The control costing approach used in the Tellus and from the costs of mitigation (e.g., for C0 2,
study results in varying estimates for the environ- CH4, and marine oil spills). For each emission,
mental costs of emissions in different areas of the they examine the range of estimates offered by
country. In several cases, estimates of the environ- each method, and then choose what they feel to be
mental costs associated with air emissions in the a plausible value.
Northeast are substantially lower than estimates The study estimates values for two general
for the costs associated with air emissions in categories of environmental effects: air emissions
Southern California. This difference results from (S0 2, NOX, C02, and CH4) and marine oil spills.
California’s more stringent emission standards. In addition, estimates are made of the environ-
California’s standards impose higher costs on uti- mental costs associated with the macroeconomic
lities and their customers, thus resulting in a high- effects of oil imports. The report also lists a set of
er estimate of environmental costs associated with other environmental costs as identified, but not
particular emissions. quantified: additional air emissions (air toxics,
CO, particulate, and ozone) and a variety of non-
| Chernick and Caverhill combustion-related environmental costs (e.g.,
The Chernick and Caverhill study was produced electromagnetic radiation, pesticide use on trans-
in 1989 by Paul Chernick and Emily Caverhill of mission rights-of-way, water and thermal pollu-
PLC, Inc.,24 a consulting firm in Boston, Massa- tion, indoor air pollution, and accidental injuries
chusetts. 25 The study was sponsored by the Bos- and deaths in extraction and transportation).
ton Gas Co. and filed with the Massachusetts Table 2-6 presents a summary of the study’s re-
Department of Public Utilities. It targets issues sults on environmental costs. The report contends
important to New England and the northeastern that estimates of environmental costs are more
United States, and is not intended to provide re- likely to be underestimates than overestimates.
sults applicable to the entire United States. It esti- Overall, the study estimates the environmental
mates environmental costs for coal, oil, and costs associated with natural gas to be somewhat
gas-fired generators. It makes no estimates of the lower than those associated with coal and oil.
environmental costs associated with other
sources, such as nuclear, hydroelectric, solar, and | Hohmeyer
wind power. The Hohmeyer study was published in 1988 by
Chernick and Caverhill make estimates by Olav Hohmeyer, then an economist and deputy
combining several sources of information. They head of the Department of Technical Change at the
examine estimates from previous environmental Fraunhofer-Institute for Systems and Innovation
cost studies (e.g., for S0 2 and NOX),26 from in- Research in the Federal Republic of Germany. 27
formation about the costs mandated by various en- It was sponsored by the Commission of the Euro-
vironmental regulations (e.g., for S0 2 and NOX), pean Communities.

2~e ~o~pay is now n~ed Resource ImigM, Inc.


2SpauI Chemick ~d Emily Caverhill, PLC, Inc., ‘The Valuation of Externalities From Energy Production, Delivery, and Use: Fall 1989
Update,” A Report to the Boston Gas Co., Dec. 22, 1989. Although entitled an “update,” this report is the primary document referred to by other
studies and analysts in the area, and appears to contain the primary methodological content.
261n p~icular, Chemick and Caverhi]] use several studies conducted for the Bomeville Power Administration (BPA) (see bdow). In mmy
cases, the authors adapt the BPA calculations to add effects they feel were left out of the original calculations.
2701av Hohmeyer, SWial Costs of Energy Cmswptim: External Effects of Electricity Generation in the Federal Republic of Germany
(Berlin, Germany: Springer-Verlag, 1988).
Chapter2 Studies of Environmental Costs 127

By emission type
Type Cost, $/lb (1988) Cost, $/lb (1990)
s o2 0.88 0.96
NOx 1.50 1.64
c o2 0.011 0.012
CH4 0.35 0.38
Marine 011 spills o.20/MMBTU o.22/MMBTU
By plant type
Plant Cost, ¢/kwh (1988) Cost¢ ¢/kWh (1990)
Coal
Existing (1 .2% S) 5.7 6.2
AFBC 3.8 4.1
IGCC 3.2 3.5
NSPS 4.9 5.3
Oil
Existing steam plant (0.5% S) 3.6 3.9
Existing steam plant (1% S) 4.3 4.7
Existing steam plant (2.2% S) 5.8 6.3
Combustion turbine (0.3% S) 5.0 5.5
Natural Gas
Existing steam plant 1.9 2.1
Combined cycle 1.9 2.1
NSPS 1.6 1.7
BACT 1.28 1.40
NOTE MBTU = 1,000 BTU Values in 1988 dollars and cents are reported in the study. Values in 1990 dollars and cents are adjusted using the
consumer price index Values are speclflc to the Northeast. The authors felt that the values reported above are “more likely to be understated than
overstated “ (p 96) Values for many other classes of costs were not estimated, due to their inability to quantify them with any certainty
Valuesforod-fired generators were adjusted toexc/ude an oil import premwmthat was included mthereport<sfmal estimates This premum reflects
the national economic cost of oil imports It includes costs asscxxated with vulnerabhties to interruptions and price swings, increases m mflahon,
and deterioration of the balance of payments In contrast to every other effect estimated, the 011 import premum IS nonenvlronmental.
The study derwes values for for various plant types from the values for emission types. In addition to the combustion-related emmons, 00007
pounds of NOX were included for each source to account for emsslons during transportation No cost estimates were made for some combushon
emlsslons (aw toxlcs, CO, partlculates, and ozone) and for some noncombustlon related effects (e g., electromagnetic radlatlon, solid waste gen-
erahon, water and thermal polluhon, and accidental deaths and injuries).
Values for new coal and gas plants (NSPS, IGCC, AFBC, and BACT) are specific to New England
KEY. NSPS = New source performance standards, IGCC = Integrated gas combined cycle; AFBC = Atmospheric fluldlzed bed combustion,
BACT = Best available control technology.
SOURCE Paul Chernlck and Emily CaverhN, PLC, Inc , “The Valuatlon of Externalities from Energy ProductIon, Delwery, and Use: Fall 1989 Up-
date, ” A Report to the Boston Gas Co , Dec. 22, 1989.

The study is specific to the Federal Republic of The study explicitly compares renewable ener-
Germany. However, it is worth considering be- gy resources, such as solar and wind, with conven-
cause it is widely cited and generated substantial tional energy sources, such as coal and nuclear. It
interest in the United States when it was released. focuses on costs in the following categories: envi-
Its methodology is explained fairly carefully in ronmental effects, subsidies, depletion of nonre-
the text of the study, and Hohmeyer maintains the newable resources, and public expenditures
general approach is valid for any market-based (R&D support, induced expenditures, and subsi-
economy. dies).
.

28 I Studies of the Environmental Costs of Electricity

Envirwwnental effects by plant type


Plant Cost, DM/kWh (1982) Cost, ¢/kWh (1990)
Fossil fuels 0.0114-0.0609 0.78-4.153
Nuclear 0.0120-0.1200 0.82-8.18
Solar 0.0044 0.30
Wind O.0001 0.007

NOTE: Values in 1982 Deutsche Marks are reported in the study. Values in 1982 cents were converted using a conversion rate of 2DMn — a rough
value suggested by Hohmeyer during presentations on the study. Values m 1990 dollars are adjusted using the consumer price index. Values are
specific to the Federal Republic of Germany. Values for some classes of effects were not estimated. Estimates for nuclear reactors excludes breed-
er reactors.
Values presented here are for environmental costs only, Estimates of public expenditures and resource depletion costs that are included m the
study are not included in this table.
SOURCE: Olav Hohmeyer, Social Costs of Energy Consumption: External Effects of Electricity Generation in the Federal Republic of Germany
(Berhn, Germany: Sprmger-Verlag, 1988).

Its cost estimates are based on several sources. of Hohmeyer’s study. Overall, the study estimates
Some estimates come directly from other studies that the environmental costs of coal and nuclear
that value specific categories of effects (e.g., hu- power are substantially larger than those of solar
man health effects of air pollution). Other esti- and wind power. The report notes that the quanti-
mates involve direct calculations based on dam- tative results should be interpreted as a first
ages (e.g., estimating the probability of, and approximation that can be useful for policy. Fur-
health effects from, a nuclear accident and multi- ther, the report claims that where uncertainty ex-
plying by the monetary value of a life). Finally, a isted, the assumptions were least favorable to the
few estimates involve the costs of mitigating envi- report’s eventual conclusion (that the environ-
ronmental damages (e.g., the costs of avoiding the mental costs of renewable sources are consider-
effects of sea level rise brought on by global ably lower than those of conventional sources).
warming).
The study explicitly notes several classes of en- I Bonneville Power Administration
vironmental costs are not quantified. These in- The Bonneville Power Administration (BPA)
clude “psycho-social” costs of deaths and illness, study was undertaken to comply with the provi-
health care costs, species loss, environmental ef- sions of the Pacific Northwest Electric Power
fects of intermediate goods used to produce and Planning and Conservation Act, passed in 1980.
operate energy systems, some costs of climatic The act requires the Bonneville Power Adminis-
changes, environmental costs of routine operation tration and the Northwest Power Planning Coun-
of nuclear plants, and aesthetic and land-use ef- cil to pursue a planning process that gives priority
fects of renewable energy. The author contends to cost-effective energy options when planning
that data gaps and uncertainties (which prevented new energy generation capacity. The act requires
some effects from being quantified or monetized) that evaluations of cost-effectiveness include
placed renewable energy sources at a disadvan- quantifiable environmental costs that are directly
tage. attributable to energy conservation measures or
Table 2-7 summarizes the quantitative results new energy resources.28

zs~is same act motivated a coalition of environmental, labor, ratepayer, and citizens’ groups to produce a separate s~dy (see Shuman and
Cavanagh, below).
Chapter2 Studies of Environmental Costs 129

By plant type
Plant
Coal 0.064-0.956 0.072-1.081
Oil
Combustion turbine 0.03 0.04
Natural Gas
Combustion turbine 0.087 0.108
Nuclear 0.000837-0.0126 0.001142-0.0172
Hydroelectric 0.769-1.074 1,049-1,465
Biomass -0.011-0.49 -0.013-0.56
Municipal Solid Waste -3,18-41.664 -3.66-47.9852
Geothermal 0-0.0188 0-0,0217
Solar 0 0
Wind 0 0

The study consists of a set of six semi-indepen- coal (both a generic and a site-specific analysis),
dent studies, completed over a period of five years oil and natural gas (fueling combustion turbines),
by three different contractors: ECO Northwest, nuclear, hydroelectric, solar, wind, geothermal,
Nero and Associates, and Biosystems Analysis.29 biomass, and municipal solid waste. The quantita-
The studies covered 10 different energy sources: tive results of the study are given in table 2-8.
30 I Studies of the Environmental Costs of Electricity

Although the studies are similar in the broad sociated with coal and nuclear. The authors be-
outlines of their methodology, they vary substan- lieve their analysis to be conservative-the
tially in a number of factors, including the emis- assumptions made in the study are least favorable
sions considered and the specific valuation to the eventual conclusions of the study (that coal
approaches used. As a result, the cost estimates as- and nuclear have high environmental costs rela-
sociated with the energy sources cannot be tive to solar, wind, and conservation).
compared with each other in the same way as esti- The study’s explicit aim is to compare renew-
mates made by other studies. able sources of energy, such as solar and wind,
with conventional sources such as coal and nu-
clear. The study’s estimates of solar and wind were
| Shuman and Cavanagh done largely in a relative way. For example, the
The Shuman and Cavanagh study was prepared in health impacts of solar and wind were estimated
1982 by Michael Shuman and Ralph Cavanagh of by using the estimate for nuclear (excluding acci-
the Natural Resources Defense Council. It was dents, radon emissions, and proliferation). This
prepared as part of a larger report-a comprehen- decision reflected the authors’ belief that the pri-
sive proposal for future power development in the mary environmental costs of solar and wind were
Pacific Northwest-sponsored by the Northwest due to the construction of a large energy-produc-
Conservation Act Coalition, an umbrella organi- ing facility and that those risks were similar for
zation for 38 environmental, labor, ratepayer, and nuclear, solar, and wind. The study assumes that
citizens’ groups in the Pacific Northwest.30 The few environmental impacts are reflected in the
environmental cost estimates are contained in ap- economic costs of energy use, and that most envi-
pendix 2 of the larger report.31 ronmental costs should be treated as economic ex-
The study examines some of the most signifi- ternalities.
cant environmental impacts of five different ener- In their analysis, Shuman and Cavanagh felt it
gy options: coal, nuclear, wind, solar water was best to preserve uncertainties in the range of
heating, and household weatherization. It esti- estimates offered, rather than in what classes of
mates costs for occupational and public exposure environmental costs were included. As a result,
to emissions; property and crop damage from they quantify environmental costs some other
emissions; occupational and nonoccupational ac- studies typically leave out. For example, esti-
cidents in extraction, transportation, and genera- mates of coal environmental costs include the
tion (including catastrophic nuclear accidents); health effects and property damage resulting from
and nuclear proliferation. The study does not ad- climate change. These effects account for more
dress a variety of potential environmental costs than half of the total costs at the high end of the
such as water consumption, recreation losses, fish range that Shuman and Cavanagh give for coal
and wildlife mortality, aesthetic damage, and im- power. Similarly, estimates of nuclear environ-
pacts from transmission and distribution facili- mental costs include the health effects and proper-
ties. ty damage resulting from nuclear accidents, radon
A summary of the study’s quantitative findings release, and weapons proliferation. These effects
is shown in table 2-9. Overall, the study estimates account for more than 99 percent of the high end
that the environmental costs of solar, wind, and of the range given for environmental costs associ-
weatherization are less than one-tenth of those as- ated with nuclear power.

SoRalph Cavmagh et ~]., A M~el Electric power and Consemation plan for the Pacijc Northwest (Seattle, WA: Northwest Conse!_vation
Act Coalition, November 1982).
31 Sh umm and C avmag h, op. Cit., foomote 7.
Chapter2 Studies of Environmental Costs 131

By plant type

~Plant Midpoint range Full range Midpoint range Full range


Coal 2-3 0.03-20.68 3-5 0.05-35.31
Nuclear 2-3 0.05-30.24 3-5 0.09-51.64
Solar and Wind 0-0.12 — 0-0.20 —
o — o —

COMPARING STUDIES analysts adapt calculations used in other studies to


The final results of environmental cost studies suit their own purposes. Studies nonetheless re-
cannot be validated, in the sense of being able to quire substantial work on the part of their authors:
compare them with some objective reality. Other they must develop an overall structure for the
types of studies can, at least in principle, be study; they must locate, critique, and select origi-
compared with measurements of actual phenome- nal studies; and they must combine those studies
na. For example, energy demand forecasts can be in a rigorous and defensible way.
compared with actual demand experienced at a This prevailing approach of assembling small-
later date; models that estimate environmental er pieces means that each study does not represent
transport of pollutants can be compared with mea- an independent estimate of environmental costs.
sured concentrations of those pollutants. In con- The estimates, assumptions, and methods of one
trast, environmental cost studies produce final study are often used in subsequent studies, albeit
results that cannot be compared with anything ex- in modified form. The body of literature on envi-
cept results of other studies. ronmental costs thus represents an evolving set of
The difficulty with validating environmental related estimates rather than a set of completely
cost studies places special importance on the abil- independent ones.33
ity to compare the results of several studies. This In addition, environmental cost studies are not
section discusses several conclusions based on a always estimating the same thing. Each study has
comparison of the studies reviewed in this chapter. its own definition of what constitutes an environ-
mental cost and its own assumptions about how
| Estimates are Not Independent the cost should be estimated. As a result, any two
None of the studies summarized above contain studies may actually be estimating quantities
only original research. All of the studies assemble whose definitions only partially overlap.
smaller studies of individual components such as These features of environmental cost studies
the health impacts of particulate, the value at- have important implications for how the studies’
tached to a human life, and the willingness to pay quantitative estimates are used. When viewing a
for pollution-free wilderness .32 In addition, some set of quantitative estimates, there is a temptation

321n a few c~s, Me s~dies conduc[ed origina] research to supplement the other, smaller studies that they assembled to estimate environ-
mental cost. For example, the BPA site-specific hydroelectric study conducted original valuation research.
33~is should not ~ cons~~ to mean, necessmi]y, that the externalities literature is converging on a single set of estimates or mat more
recent studies are always superior to older ones.
32 I Studies of the Environmental Costs of Electricity

Studies using as a major categorization


Method Examples method
Energy source Coal, oil, nuclear, photovoltaics Pace, Tellus, Chernick and Caverhill;
Hohmeyer, BPA, Shuman and Cavanagh

Activity Mining, transportation, fuel processing, BPA (coal), Shuman and Cavanagh
generation, waste disposal, energy use
Emission S02, C02, NOX, particulate, heat, noise Pace, Tellus, Chernick and Caverhill
Impact Human health, quality of life, climate, flora, Hohmeyer, BPA (coal and hydro), Shuman
fauna and Cavanagh
Manifestation Species extinction, global warming, cancer Shuman and Cavanagh

NOTE: It maybe possible to retrospectively apply different categorization schemes to published studies based on data they contain. However, for a
study to be listed in the rightmost column, the method must be used explicitly in the study to organize the reported results, The DOE/EC and New
York State studies are excluded because they are not yet completed,
SOURCE: Office of Technology Assessment, 1994.

simply to average the values, assuming that each and this is made substantially more difficult when
value is an independent estimate of the same quan- the components are reported using different cate-
tity. These conditions do not hold for the environ- gorization schemes.
mental cost estimates discussed in this chapter, For example, the Pace study reports environ-
and the estimates should not be averaged. Instead, mental costs associated with particular emissions
individual studies need to be examined and their (e.g., CO2, SO2, NOx particulate) and then com-
estimates compared. bines these with quantity estimates to estimate the
environmental costs associated with each fossil
| Studies Categorize Costs Differently fuel energy source (e.g., coal, oil, natural gas). In
Unfortunately, interstudy comparisons are often contrast, the BPA generic coal study categorizes
problematic. Environmental cost studies employ effects by impact (e.g., human health, crops, live-
a wide variety of methods for categorizing envi- stock, timber, materials, ecosystems, and visibili-
ronmental costs (see table 2-10). Each method ty).
provides a different view of environmental costs. If studies use a common framework, compari-
A single activity, such as the emission of carbon sons are easier. Analysts and readers could
dioxide from a coal plant, can be categorized by compare several studies side by side to understand
many different characteristics, including the me- their similarities and differences. In addition, a
dium of the emission (air), the phase of the fuel consistent framework allows researchers to alter
cycle (generation), and the energy source (coal). an existing study to incorporate new data or
The differing categorization schemes em- assumptions. However, no categorization of envi-
ployed by different studies make comparisons dif- ronmental costs fits perfectly for all environmen-
ficult. Nearly all studies categorize results by tal effects and all technologies.34
energy source (e.g., coal, nuclear, and hydroelec- Differences in categorization are understand-
tric). However, the components that make up able, given the diverse conditions and purposes
these overall estimates are important to examine, under which the studies were assembled. How-

34Stirl~g, op. cit., foomote 4.


Chapter2 Studies of Environmental Costs 133

ever, the differences force policy makers to view nick and Caverhill) estimate costs for fossil fuels
existing studies as independent units of analysis, and categorize effects by emission. When a single
rather than flexible tools whose assumptions and category dominates in an estimate from these
numeric values can be interchanged to fit the studies, the category is either S0 2 or C02. Similar
policy makers’ particular circumstances or inter- conclusions are difficult to draw for nuclear and
ests. In contrast, the results of at least one pending renewable energy sources because the studies are
study (New York State) will be embodied in com- often less specific about how they categorize ef-
puter software, which will allow many parameters fects for these energy sources.
of the study to be changed easily, although its ba- This dominance of single effects has important
sic structure will remain fixed. implications for policy makers. It points to the po-
tential for environmental cost studies to be used
| One Effect Category Often Dominates for setting priorities. Although studies with differ-
Although studies categorize environmental ef- ent frameworks of assumptions may differ in their
fects quite differently, a single category dominates quantitative estimates of environmental costs, if
most estimates of environmental cost. Specifical- there is agreement on dominant effects then the
ly, in the eight studies reviewed by OTA, 55 quan- studies may provide valuable guidance for where
titative estimates were produced that were broken legislative and regulatory efforts should be fo-
down into several categories of effects. Of these, cused. Important questions of priorities would
46 (84 percent) had single categories that ac- still remain, of course, including how to balance
counted for the majority (i.e., 50 percent or more) environmental programs against other important
of the total estimate. 35 federal priorities, but focusing environmental ef-
For example, Pace makes estimates for 15 dif- forts effectively is still an important victory.
ferent generating technology and fuel combina-
tions. Within each estimate, the study categorizes | Cost Estimates are Highly Variable
effects by emission (e.g., S0 2, NOX, particulate, In some cases it is possible to compare results of
and C02). Pace produced an estimate of 4.72 different environmental cost studies .36,37 Despite
cents/kWh for the environmental cost associated these differences in categorization, rough compar-
with coal plants meeting the new source perfor- ison of results is still possible (see figures 2-2 and
mance standards (NSPS). In the case of this esti- 2-3). Comparing these results indicates wide vari-
mate, the effects associated with S0 2 accounted ation in cost estimates. Some estimates of envi-
for 2.95 cents/kWh, or more than 60 percent of the ronmental costs are nearly zero. In other cases,
total estimate. estimates are as high as 10 cents/kWh-costs that
There is some consistency in the effects that are larger than the electricity rates that average
dominate. Three studies (Pace, Tellus, and Cher- consumers currently pay. The wide variation in

sjNone of tie studjes acma]]y make this calculation. The OTA numbers are derived by employing the primary categorization method used
by each study. In some cases, not all of the estimates in the particular study were counted. For example, the BPA hydro study contained a wide
range of estimates, but only two (the high and low estimates) were included in the 55 estimates used for this calculation. Similarly, estimates
that include only a single category of effects were not counted. For example, Hohmeyer’s estimate of nuclear environmental costs is based
solely on accidents. This estimate was excluded from the 55 estimates used in the calculation.
3GNear]y all studies pr~uce resul~ categorized by energy source (e.g., coal, nuclear, and solar). Even these results are categorized ~d
reported indifferent ways. Hohmeyer presents one overall estimate for “fossil fuels,” three studies (BPA, Shuman and Cavanagh, and Chemick
and Caverhill) make distinct cost estimates for each fossil fuel source (coal, gas, and oil), and the remaining completed studies (Pace and Tellus)
produce further distinctions among several different combinations of combustion technology and fuel.
37As noted ear]ier, some ~a]yses have attempted to adjust for differences among the studies attributable to different teChIIiCd aW.U@ionS
such as the heat rates and emission factors of power plants. For example, see Koomey, op. cit., footnote 10.
34 I Studies of the Environmental Costs of Electricity

Coal
Pace : ; ~ :
Tellus :
-
Chernick & Caverhill : ~ :
Hohmeyer : ~ :
BPA :
Shuman&Cavanagh : :

oil
Pace : : ~
Tellus : ~ :
Chernick & Caverhill : ~ ;
Hohmeyer ~ - ;
BPA ❑

Natural Gas .
Pace : :
Tellus : ~ ;
Chernick & Caverhill ~ - :
Hohmeyer : ~ ~
BPA ❑

Nuclear
Pace : ; ;
Hohmeyer :
BPA
Shuman & Cavanagh : : ~

o 5 10
Estimated environmental cost (¢ per kWh)

❑ Point estimate
Several point estimates
Estimated range

NOTES: See text for full description of the difficulty of comparing environmental cost estimates, When several point estimates are gwen, each esti-
mate is for a different specific generating technology (e.g., combustion turbine) or specific fuel (e g., oil with 1 % sulfur content). Hohmeyer gives
only one estimated range for all fossil fuels (coal, oil, and gas). TheShuman and Cavanagh estimates are the “best estimate” ranges, Costs are gwen
m 1990 cents per kllwatt-hour. Not all results are shown for each study.
SOURCE: Office of Technology Assessment, 1994
Chapter2 Studies of Environmental Costs 135

Pace
Coal
Oil
Natural Gas
Nuclear

Tellus
Coal
oil
Natural Gas

Chernick & Caverhill


Coal
Oil
Natural Gas

Hohmeyer
Fossil
Nuclear

BPA
Coal
Oil
Natural Gas
Nuclear

Shuman & Cavanagh ,


Coal : : ~
Nuclear : : ~

I , 1
0 5 10

❑ Point estimate
~ Several point estimates
~ Estimated range

NOTES See text for full description of the ddflculty of comparing environmental cost estimates When several point est[mates are given, each esti-
mate IS for a different speclflc generating technology (e g , combushon turbine) or speclflc fuel (e g., 011 with 1 YO sulfur content). Hohmeyer gwes
only one estimated range for all fossil fuels (coal, 011, and gas) The BPA estimates should not be directly compared because the mdwldual studies
used different methods and assumptions. The Shuman and Cavanagh esttmates are the “best estimate” ranges. Costs are gwen m 1990 cents per
kilowatt-hour Not all results are shown for each study
36 I Studies of the Environmental Costs of Electricity

quantitative estimates demonstrates there is no eral of the BPA studies evaluate the uncertainty to
consensus about cost estimates among currently be as large or larger than the estimate itself, indi-
published environmental cost studies. cating that the actual cost could be nearly zero or
as much as twice the point estimate. 38
I Cost Estimates are Highly Uncertain Finally, most studies are careful to label their
Due to a variety of analytical difficulties and un- results “preliminary.” This is due to various data
knowns, all of the studies are cautious in their pre- gaps, uncertainties, methodological disputes, and
sentation of numerical estimates. First, some the early stage of development of environmental
studies present broad ranges of possible values cost analysis. Based on uncertainty estimates and
rather than specific numeric estimates (often cautions contained in the studies, and based on the
called “point estimates”). For example, Hohmey - large differences in the results of different studies,
er, BPA, and Shuman and Cavanagh all use this prospective users of environmental cost studies
method. Shuman and Cavanagh even go so far as should assume that all estimates are highly uncer-
to produce a “midpoint range” indicating values tain and preliminary.
they think are most likely, and a “full range” for
coal and nuclear indicating values they think are | Conclusion
possible. Where ranges are presented, they are Many of these issues—independence, categoriza-
often quite large. The Hohmeyer high and low es- tion, variability, and uncertainty-are closely re-
timates vary by a factor of about five in the case lated to the valuation phase of environmental cost
of fossil fuels and 10 in the case of nuclear. Shu- studies. This phase takes quantitative estimates of
man and Cavanagh’s full range high and low esti- environmental impacts and attempts to value
mates differ by more than a factor of 500. them in monetary terms. Other study phases also
Second, some studies produce a point estimate bear on the issues discussed above, but valuation
and then attempt to evaluate the uncertainty asso- introduces additional dimensions and complica-
ciated with that estimate. Where uncertainty is tions. The different methods of valuation are dis-
evaluated, it is often quite large. For example, sev- cussed the next chapter.

38 SWcifjcally, the cost estjma~s for coal, oil, and natural gas are accompanied by uncertainty estimates. For coal, the swtid deviation
is estimated to be equal to the estimate itself. For oil and gas, the two standard deviations are estimated to be equal to the estimate itself. The
standard deviation is a statistical quantity indicating the variability of an estimate. For a normal (or “bell shaped”) distribution, approximately
95 percent of the possible values lie within two standard deviations of the mean value (the center of the distribution).
Methods for
Valuing
Environmental
costs

v aluation is a method used in environmental cost studies to


assign monetary values to the environmental effects of
electricity production. Examples include finding the val-
ue individuals attach to reducing the risks of coal mining,
improving urban air quality, or assuring clear visibility.
Valuation is a particularly important method to understand. Al-
though environmental cost studies raise many other important
methodological issues in addition to valuation (e.g., human risk
assessment, extrapolation from animal studies, and estimates of
transport and deposition of environmental pollutants), these
methods have been well reviewed by other reports and are amena-
ble to further scientific research. In contrast, disputes about valua-
tion methods are relatively new to policy makers and appear less
amenable to resolution by additional research. Differing assump-
tions of analysts strongly affect the choice to use monetary valua-
tion at all, the choice of valuation method, and the way that
method is applied. Because there is little or no consensus on these
assumptions, valuation lies at the root of much of the controversy
over the study and use of environmental costs.
At least five valuation methods are used in current environ-
mental cost studies. ] Market valuation uses existing market
prices to estimate damages. Contingent valuation elicits esti-
mates from consumers by the use of survey techniques. Hedonic
valuation examines existing market prices to detect implicit valu-

I All of ~ese techniques assume a goal of monerary valuation. This almost always has
been the goal of environmental cost studies. In theory, however, a study could analyze the
“costs” of electricity generation in a more general, noneconomic sense. For additional dis- I 37
cussion, see the section in chapter 4 on quantification and monetization.
38 I Studies of the Environmental Costs of Electricity

ation of environmental factors by consumers. gy prices, they may not include all relevant costs.
Control cost valuation examines existing regula- Many individuals would contend that forests have
tory decisions to detect implicit valuation of envi- higher value than the commercial value of the tim-
ronmental factors by government regulators. ber, and that the value of some animal life is higher
Mitigation cost valuation examines the cost of re- than the market price of their pelts. There is no
pairing environmental damages to estimate the generally accepted method to account for these ef-
value of preventing such damages from occurring. fects, and attempting to do so could involve an
Each valuation method is detailed in the following analysis as large as the original environmental
sections. 2 cost study. As a result, most studies that use mar-
ket valuation do not attempt to adjust market price
MARKET VALUATION data to account for them.
In some cases, environmental impacts from ener- The major limitation of market valuation is that
gy production affect things that are bought and not all environmental impacts of energy affect
sold, and thus have a market price. For example, things that are bought and sold in markets. The
hydroelectric facilities can reduce salmon popula- value of items such as visibility, preservation of
tions by hindering the upstream migration of adult endangered species, and health impacts cannot be
salmon to spawn and the downstream migration of estimated using market valuation.3 This limita-
juvenile salmon toward the ocean. One method of tion has led to the use of several other valuation
estimating the cost of a reduced salmon popula- techniques.
tion is to multiply the reduction by the market
price of salmon.
Market valuation is used in several studies. For HEDONIC VALUATION
example, the Pace study uses market prices to val- Hedonic valuation examines existing market
ue the corrosive impact of air pollution on materi- prices for evidence of the value placed on particu-
als and the potential property damage from a large lar environmental effects. For example, one way
nuclear accident. Similarly, the Bonneville Power to estimate the value of a recreational area is to ex-
Administration (BPA) studies use market valua- amine the travel costs borne voluntarily by those
tion in several contexts, including valuing im- who visit the area. Similarly, one way to estimate
pacts on agriculture, fur trapping, and commercial the value associated with personal safety is to
forestry. compare the wages of workers in hazardous oc-
Market valuation has the advantage of relying cupations with those in occupations that are safer,
on data that are readily available and fairly un- but otherwise similar.
controversial. Care must be taken to find prices Several studies use hedonic valuation to esti-
that apply to the specific losses associated with mate the value of environmental impacts. For ex-
energy generation (e.g., prices appropriate to the ample, the BPA studies for coal, oil, and gas use
specific crops grown where emissions have their estimates that infer the value of visibility from
greatest impacts), but this difficulty is fairly easy property values. Pace uses those estimates as well.
to overcome. Similarly, the BPA hydroelectric study uses esti-
Market valuation also has some subtle pitfalls. mates based on the travel costs of hunters to value
Market costs may be distorted because, like ener- the loss of deer in the area to be flooded by a dam.

z~is chapter is memt t. in~duce reade~ to various valuation techniques, not to be a detailed methodological critique. Detailed examina-
tions of each method can be found in footnoted references in each section.
S“Visibility” refem t. the presence or absence of haze often produced by burning fossil fiel. Visibility problems are most commonly en-
countered over urban areas, but also have become an issue in scenic vistas such as those around the Grand Canyon.
Chapter3 Methods for Valuing Environmental Costs 139

Like market valuation, hedonic methods have questions can be couched in several different
the advantage of deriving from choices made by forms, such as a direct question, a series of ques-
consumers. This avoids problems that may stem tions about hypothetical economic tradeoffs, or a
from inaccurate self-reporting--i.e., problems referendum—asking respondents whether they
caused by individuals who say they place a partic- would vote for a particular tax increase to fund the
ular value on an environmental impact, but who program. In each case, the goal is to elicit an eco-
do not act consistently with that belief (seethe dis- nomic value that the individual attaches to the pro-
cussion of contingent valuation below). gram, in as realistic a way as possible.
Unlike market valuation, however, hedonic CV could be used to estimate willingness to
methods must adjust for all factors that influence pay for almost anything, including goods that are
price other than the object of study. For example, actively bought and sold in markets. However, the
to determine the value of visibility by using prop- technique’s greatest use is for estimating the value
erty values, analysts must account for all the other of goods and services that are not bought and sold
reasons property values may vary (e.g., quality of in markets. Specifically, CV can be used to esti-
home, access to services, proximity to work- mate what are called non-use values (see box 3-1 ).
places). Although statistical techniques exist to CV has been actively studied for about 20
account for these other influences, there are a great years. In the past five years there has been a dra-
many practical and theoretical pitfalls to avoid. matic increase in the number of academic studies
In addition, prices may not accurately reflect and presentations on the topic,5 and several com-
how people value environmental effects. For ex- prehensive texts exist. b CV also has been em-
ample, wage differentials may not accurately re- ployed in a variety of environmental cost studies.
flect risks to workers. First, workers may be For example, the BPA hydroelectric study esti-
unaware of risks they face, and they may not de- mates the value of old-growth forest impacts by
mand higher wages to account for increased risk. contingent valuation. The BPA oil and gas study
Second, workers may be unable to bargain effec- uses evidence from contingent valuation studies
tively to make their wages adequately compensate to estimate the value of visibility. This estimate,
them for their risks. Barriers to job mobility may in turn, is used by Pace. Finally, both the DOE/EC
limit the opportunities of high-risk workers to and the New York State studies expect to make use
change positions or occupations. 4 of CV to estimate the value of several environ-
mental impacts that cannot be valued easily in oth-
CONTINGENT VALUATION er ways.
Contingent valuation (CV) consists of surveying CV has some distinct advantages over other
individuals directly about the value they attach to methods. First, it is the only method that can eval-
environmental damages. A typical survey pro- uate non-use values. As noted in box 3-1, non-use
vides a respondent with information about a hypo- values can bean important source of environmen-
thetical program that will prevent future harm to tal cost data. Second, citizens, not experts, pro-
the environment. The respondent then is asked duce the evaluation. Proponents of CV are quick
how much he or she would be willing to pay, indi- to point out that the method has a strong undercur-
vidually, to bring the program into existence. The rent of democratic decisionmaking. Private citi-

gjo~ p. HO1&en, Inlegraled ASSeS$rneW for Energy-Related Environmental Stan&rds: A Summary of I$sues ad Fj~ings, LBL- 12779
(Berkeley, CA: Lawrence Berkeley Laboratory, October 1980).
5Kenne~ pUTOW et al., “Report of the NOAA Panel on Contingent Valuation,” J~. 11, 1993.
6 For example, sm Ro~~ C. Mitche]l ~d Rich~d T. Carson, Using Surveys To Value Public GoOdS: The contingent val~tion Method
(Washington, DC: Resources for the Future, 1989).
40 I Studies of the Environmental Costs of Electricity

Some environmental resources are regularly used by individuals or groups. For example, wilderness
areas provide recreation for hikers and hunters—recreation that may be curtailed if the areas are
harmed. The worth of this recreation is referred to as a “use value, ” because individuals benefit from
actually using the wilderness area. Attaching monetary figures to use values can be challenging, but
involves well-recognized principles in economics.
In addition to use values, economists have come to recognize that a person may value something,
even if he or she does not intend to use it. This “non-use” value, also known as “passive-use” value,
measures the worth ascribed to something that is not used. Non-use values have been divided into at
least three categories: 1) option value-the value of preserving a resource for potential future use. For
example, even though someone may not be considering an immediate visit to the Grand Canyon, he or
she may wish to preserve the option for a future visit; 2) bequest value-the value of preserving a re-
source for future generations. Even though an individual may never expect to visit the Grand Canyon,
he or she may wish to preserve that option for future generations; 3) existence value-the value of
“knowing the resource exists. ” Some individuals attach a value to the existence and protection of a re-
source, even if they never expect anyone to use it.
Non-use values have engendered substantial controversy, One reason is the difficulty of assessing
them. Use values can be measured by an individual’s behavior-how far a person travels to use a rec-
reation area, for example. By definition, non-use values involve few outward signs. Surveying individuals
about the value they place on environmental resources-called contingent valauation (CV)-generally is
recognized as the only method of assessing all types of non-use values. Because the results of CV are
difficult to check against behavior, observers are skeptical of their results
Another focus of controversy is the claim that non-use values can represent moral and ethical con-
cerns. Some economists claim that individuals’ responses to CV surveys represent more than just pref-
erences that are commonly linked with market choices (e.g., tastes and fashion); in addition, they also
represent moral and ethical beliefs of the individual. Others, such as philosopher Mark Sagoff, argue
that such ethical and political choices are distinct from the preferences considered by economists and
cannot be treated in the same way. These writers argue that economic preferences are concerned with
personal benefit and are best resolved within markets; ethical choices are concerned with community
good and are best resolved in a more public forum.
To summarize, few participants in environmental cost debates deny that non-use values exist, but
there is substantial disagreement about how to measure non-use values reliably and about their proper
role in public decisions.

SOURCES: Mark Sagoff, “Environmental Economics: An Epitaph,” Resources, No. 111, spring 1993, pp. 2-7; Raymond J. Kopp, “En-
vironmental Economics: Not Dead But Thriving, ” Resources, No. 111, spring 1993, pp. 7-1 2; Oak Ridge National Laboratory and
Resources for the Future, U. S.-EC Fue/Cyc/e Study: &ckgroundhumentto t&@prmch arrcf/ssues, Report No. 1 on the External
Costs and Benefits of Fuel Cycles: A Study by the U.S. Department of Energy and the Commission of the European Communities,
ORNLJ!vl-2500 (Oak Ridge, TN: Oak Ridge National Laboratory, November 1992).

—- —..
Chapter3 Methods for Valuing Environmental Costs 141

zens, not experts who may be detached from the er what expense they will forego to pay for such
interests of the public, are asked to value the pro- a contribution. One study estimating willingness
grams. This puts some of the decisionmaking to pay for protecting the Alaskan coast from oil
power in the hands of those who ultimately will spills showed that estimates varied substantially
pay for the environmental control and mitigation depending on whether such values were discussed
programs (through taxes and/or higher product independently ($85) or in the context of overall
prices). government spending ($0.29 ).9
CV is far from universally accepted, however, Fourth, respondents may give “strategic” an-
and several criticisms have been made. First, re- swers to survey questions that are intended to in-
sults vary with how the questions are asked. Rela- fluence public agencies. A respondent might
tively subtle differences in wording, in the order believe that, by stating a high value, he or she can
questions are asked, or in the supporting evidence encourage state or federal agencies to undertake
given, can substantially affect the answers of re- the programs described in the survey. Alternative-
spondents. Second, some results are not consis- ly, respondents may believe that, by stating a low
tent with basic tenets of economic theory. value, they will reduce or avoid a future tax in-
Economists expect that the value of a certain crease to pay for such programs. 10
quantity of goods will increase as that quantity in- Finally, respondents may not fully understand
creases. For example, if someone is willing to pay or trust the information provided by the survey.
a dollar for an apple, they should be willing to pay The responses requested on CV surveys are unlike
substantially more than a dollar for two apples. typical choices made by consumers. Environmen-
Respondents in CV studies have not always be- tal effects have impacts that go far beyond the re-
haved as economists expect. In one study, the av- spondent in both time and space. Evaluating
erage willingness to pay to prevent 2,000 environmental effects deals with topics (e.g., ecol-
migratory birds from dying was as great as that for ogy, biology, atmospheric science) that are unfa-
preventing 20,000 or 200,000 birds from dying.7 miliar to most respondents, and few respondents
Third, studies sometimes appear to produce un- have had the opportunity to see the effects of pre-
reasonable answers. Some critics have argued that vious choices. Respondents also may not trust the
CV results should be dismissed merely because given information. They may react based on an
the implied value of environmental damages, overall belief about environmental reporting (e.g.,
when aggregated on a national level, are unreason- “those environmental problems are always exag-
ably large.8 One reason for these large values is gerated” or “the damage always ends up to be
that respondents lack a meaningful budget worse then we’re initially led to believe”). In any
constraint and the need to consider tradeoffs. Al- of these cases, respondents may not be answering
though respondents might report they are willing the question given, and they may not produce an
to spend $100 to prevent future oil spills, they may accurate assessment of their willingness to pay.
fail to account for all the other environmental pro- To summarize, CV studies are subject to a vari-
grams they might be asked to fund or other, nonen- ety of biases that are potentially troubling, and
vironmental uses for their funds. Particularly care needs to be taken in the design, conduct and
when such responses are hypothetical, as they are reporting of studies. However, CV studies can
in CV, respondents may not meaningfully consid-

7A mow et al., op. cit., footnote 5.


sFor example, see Chw]es J. DiBona, “Assessing Environmental Damage,” Issues in Science and Technology, fall 1992, pP. 50-54.
gcharles River Associates, “Methodological Biases in Valuing Environmental Resource Damage,” CRA Review, December 1992, PP. 1-4.
lOAmow et al., op. cit., fOOmOte 5.
42 Studies of the Environmental Costs of Electricity

produce useful information for evaluating envi- introduces many uncertainties and potential anal-
ronmental costs, and CV appears to be the only ysis problems.
method to assess non-use values, a potentially im- However, analysts point to a variety of failings
portant component of these costs.1 1 associated with control cost valuation. First, it is
criticized as representing circular reasoning.
CONTROL COST VALUATION Many analysts believe one important goal of envi-
Control cost valuation infers the value of environ- ronmental cost analysis is to compare the costs
mental impacts by examining the pattern of public and benefits of environmental regulations. If the
decisions recorded in regulations, laws, and court cost of regulations (i.e., cost of environmental
rulings. By determining the cost of the controls control technologies) is used to estimate the bene-
mandated by these decisions, and their benefits in fits (i.e., environmental costs avoided), then a
terms of environmental effects, the dollar value of meaningful comparison of costs and benefits is
those effects can be estimated. Control cost valua- impossible. This argument is explored in more de-
tion is also termed “shadow pricing” or “revealed tail in chapter 4.
preference” valuation. Second, control costs can vary widely. Studies
For example, the Tellus study uses control cost of cost per life saved have indicated large varia-
valuation to estimate the environmental cost asso- tions in the values implied by the costs and bene-
ciated with various air emissions, including NOX, fits of different regulations. Critics of control cost
SOX, and C02. To estimate each of these costs, the valuation use this variation as evidence of prob-
Tellus study takes cost estimates for various pollu- lems with the method. If the values vary so widely,
tion control technologies whose use is mandated then regulations clearly do not represent a rigor-
by federal or state regulation. The study then di- ous weighing of costs and benefits. However,
vides these costs by the emissions reductions (in some supporters of control cost valuation are not
pounds) that the technologies achieve. This cal- so troubled by these variations. Supporters argue
culation produces a cost per pound figure that is that control costs indicate the minimum costs reg-
used as an estimate of the environmental cost per ulators are willing to impose. Because of this be-
pound of emissions. lief, studies that use control costs valuation often
The major advantage of control cost valuation use the highest cost of control. 12
is its simplicity. Control costs can be calculated
merely by dividing the cost of mandated controls MITIGATION COST VALUATION
by the emissions reduction achieved by the con- Like control cost valuation, mitigation cost valua-
trols. The data for these two numbers are relative- tion attempts to infer environmental costs from
ly uncontroversial and easy to obtain. In contrast, the costs of responses to environmental damage.
alternative methods require tracing emissions In contrast to control cost valuation, however,
from generation (e.g., S0 2 from a coal plant), mitigation cost valuation does not examine costs
through intermediate pathways (acid rain), to imposed by current regulations. Instead, it ex-
eventual environmental impacts (forest damage). amines prospective mitigation costs under the pre-
Then the impacts must be valued. That process sumption that additional environmental impacts

1 l~ew conclusions me supported by a review by the National Oceanographic and Atmospheric Administration’s (NOAA) panel on Con-
tingent Valuation. The NOAA Panel’s report gives a variety of guidelines for conducting accurate and useful CV studies. Arrow et al., op. cit.,
foomote 5.
Izpaul Chemick and Emily Caverhill, PLC, Inc., “The Valuation of Externalities from Energy Production, Delivery, and Use: Fall 1989
Update,” A Report to the Boston Gas Co., Dec. 22, 1989, p. 7.
Chapter3 Methods for Valuing Environmental Costs 143

should be avoided. Mitigation can involve revers- sy in the analytical community. The differences
ing damages (e.g., treating diseases or replacing involve the types of evidence considered. Market
damaged goods) or intervening between inter- and hedonic methods look at the purchasing deci-
mediate and final environmental effects (e.g., sions of individual consumers in actual markets,
“liming” mountain lakes to reverse the effects of control cost valuation examines the decisions of
acid rain). government regulators, and contingent valuation
Several studies use mitigation costs to estimate examines the answers of survey respondents.
environmental costs. The Pace study uses mitiga- Perhaps the most contentious and long-stand-
tion costs to estimate the costs of C0 2 emis- ing debate over valuation methodology has been
sions—an area where cost estimates are between supporters of valuation methods that are
notoriously difficult. It examines the costs associ- grouped under the label of damage costing (i.e.,
ated with growing forests to capture and sequester market, hedonic, and contingent valuation) and
carbon. Similarly, the Hohmeyer study uses miti- valuation methods grouped under the label of con-
gation costs to estimate the cost of C0 2 emissions. trol costing (i.e., control cost and mitigation cost
It estimates the costs of bolstering Germany’s valuation). This debate continues to dominate
coastal defense works (e.g., dams and locks) to many discussions of environmental cost studies.
avoid the effects of an increase in worldwide sea It is covered in greater detail in chapter 4.
levels that are thought to be one effect of global The debate over these differences sometimes
warming. obscures a basic fact: all valuation approaches in-
Mitigation cost and control cost valuation both volve assumptions about the legitimacy and ap-
have the advantage of simplicity and the disad- propriateness of different types of evidence. These
vantage of being viewed as involving circular rea- decisions often depend on questions that are be-
soning (see chapter 4 for details) .13 yond the scope of an individual study, and instead
depend on broad policy goals and how environ-
CONCLUSION mental cost studies are used to support those
The differences among valuation techniques have goals. This is the topic of the next chapter.
been a source of substantial debate and controver-

1 Jone fo~ of mitigation costing avoids the problem of circular reasoning. Studies that examine consumer behaviors intended to mitigate
environmental effects (e.g., purchasing bottled water to avoid drinking potentially contaminated water) can indicate the value they assign to
avoiding the environmental effect. However, most use of mitigation costing involves prospective actions intended to keep environmental re-
sources in their current condition.
Assumptions in
Environmental
Cost Studies 4

T
he assumptions underlying any environmental cost study
strongly influence both the overall structure of the study
and its quantitative results. Varying assumptions can in-
clude or exclude entire classes of environmental effects
from consideration. For example, the assumption that studies
should evaluate only relatively certain effects could exclude the
potential effects of C0 2 emissions on global climate. For effects
that are included in a given study, different assumptions can lead
to dramatically different numerical estimates of the value of those
effects. For example, monetized estimates of damage to wilder-
ness areas can vary greatly depending on the valuation technique.
If a study uses only the commercial value of the area’s timber,
then the damage estimate may be quite low; if the study includes
non-use values, recreation impacts, and endangered species im-
pacts, then the estimate may be much larger.
Assumptions are an integral part of any environmental cost
study. l This does not mean the studies are intentionally biased.
Rather, every environmental cost study is conducted within a
general framework of assumptions and values. When these
frameworks are the focus of social and political debate, environ-
mental cost studies can become the focus of substantial contro-
versy—as they have in some cases.
Underlying assumptions are a particular problem in environ-
mental cost studies. Estimating environmental costs requires

1 Some studies me more exp]icit than others about identifying their value frameworks.
For example, the Department of Energy/Commission of the European Communities
(IXXYEC) study explicitly discusses the basis of the economic framework that it uses. Al-
though it does not discuss this framework within the context of competing frameworks, it I 45
makes its own framework reasonably clear.
. — —

46 I Studies of the Environmental Costs of Electricity

using results from many other types of environ- studies make assumptions that affect their results,
mental studies, including studies of emissions and these assumptions often involve fundamental
generation, transport, deposition; environmental questions that lie within the purview of policy-
impact; risk assessment; and economic valuation. makers rather than analysts. These questions in-
Because of this broad scope, environmental cost clude:
studies face a vast array of vexing problems that ■ What is the goal of environmental policy? Envi-
have emerged in the past two decades of research ronmental cost studies are most frequently as-
in biology, engineering, economics, and social sociated with the goal of economic efliciency.
science (see table 4-l). Other implicit and explicit goals assumed in
Because environmental cost studies employ the environmental cost debates include equity, sus-
results of these smaller studies, they necessarily tainability, and protection of health and safety.
take on their assumptions and uncertainties, and What is the role of environmental cost studies
then add assumptions and uncertainties of their in energy policy? These studies can be used to
own. As a result, studies of environmental costs quantify economic corrections to energy mar-
are likely to require a larger number of assump- kets, facilitate compensation for environmental
tions, to yield results with greater uncertainties, damages, or guide government regulation to
and to engender more controversy than studies of protect health or encourage sustainability.
more limited scope. How is value determined? Valuation can be
There is no clear agreement about the most rele- based on consumers acting in markets, legisla-
vant set of assumptions, and this lack of agree- tors and regulators acting in political systems,
ment is reflected in how actual studies are scientists studying ecological systems, or gov-
conducted. Different environmental cost studies ernment oflicials acting in legal settings.
use different assumptions about how to define en- A few reviews of environmental cost studies
vironmental costs, how to value environmental ef- discuss the studies’ underlying assumptions and
fects, and how to handle uncertainty. The lack of values. 3 Many of the concepts in those reviews are
agreement is discussed in numerous critiques of discussed in this chapter. In addition, several other
published studies. Economists, ecologists, regu- reviews of related areas have concluded that dif-
lators, and others frequently argue over the propri- ferences in assumptions underlie many of the dis-
ety of assumptions made in specific studies. putes over quantitative studies of environmental
Several existing reviews of environmental cost issues (see box 4-1 ). Reviews of the health effects
studies examine these assumptions at some level of air pollution, the economics of salmon pres-
of technical detail.2 These critiques are useful to ervation efforts, and the risks of the herbicide
analysts who are interested in improving the alachlor all identify the importance of studies’ un-
methodology of future studies and to policy mak- derlying values and assumptions.
ers who wish to evaluate the findings of an indi- Despite the findings of these reviews, explicit
vidual study. However, from the standpoint of discussion of the fundamental questions that un-
using these studies in federal policymaking it is derlie the assumptions of environmental cost
important to realize that all environmental cost studies, and even a recognition that these ques-

2For ~xample, ~, Ri~h~d L. ~tinger et a],, Pace university (kiter for Environmental ~gal Studies, EWirOnt?W’IIUl COSZS d~k’cr~ici~

(New York, NY: Oceana Publications, 1990); Staff of the Federal Energy Regulatory Commission, Reporf on Section 808: Renewable Energy
and Energy Conservation Incentives of the Clean Air Act Amendments of 1990 (Washington, DC: December 1992).
3For exmp]e, ~~ew Stir}hg, “Regulating the E]ecticity Supply Industry by Valuing Environmental Effects: HOW Much is the Em~ror
Wearing, ’’Futures, December 1992, 1024- 1047; John P. HoMren, lntegratedAssessment for Energy-Related Environmental Standards:A Sum-
mary of Issues and Findings, LBL-12779 (Berkeley, CA: Lawrence Berkeley Laboratory, October 1980).
— .-

Chapter4 Assumptions in Environmental Cost Studies 147

Fields Selected rasearch araas


Economics Determinants of value; methods of discounting.
Psychology Perceived risk; accuracy of survey responses.
Biology and toxicology Extrapolation of human health effects from animal studies.
Epidemiology Health effects of pollutants.
Ecology Systemic effects of pollutants; determinants and importance of biodiversity.
Sociology and anthropology Cultural variations in value ascribed to environmental resources.
Atmospheric science Transport and deposition of pollutants; long-term effects of carbon dioxide emissions.

SOURCE Off Ice of Technology Assessment, 1994

tions are important, is often absent from environ- particular methodological issues. This section
mental cost analysis. Instead, the studies deal with discusses selected issues, outlines the positions
the details of implementing the assumptions (e.g., taken by different analysts, and identifies assump-
the sources of data, the calculation techniques, tions that lie at the core of each debate. Although
and the intermediate results). Even if a study’s au- other important issues may exist, the issues dis-
thors discuss its assumptions at length, a technical cussed here illustrate the importance of assump-
analysis is unlikely to resolve the issues involved. tions to the conduct and findings of environmental
In general, environmental cost studies reflect, cost studies.
rather than address, the political and social de-
bates over these questions. | Quantification and Monetization
This chapter illustrates how many of the most Environmental cost studies inevitably consider a
controversial methods and assumptions of envi- collection of disparate effects. For example, eval-
ronmental cost studies are related to more funda- uating the environmental costs associated with
mental questions. It discusses several major issues coal may involve combining occupational deaths
in environmental cost analysis and presents an and injuries from coal mining, chronic health
overall framework to help organize and explain effects of power plant emissions, ecological dam-
different sets of assumptions. age from global warming, property damage from
acid rain, and resource depletion resulting from
ISSUES AND UNDERLYING burning fossil fuels. Without a common set of
ASSUMPTIONS units, these effects cannot easily be compared
Decisions about valuation and other methodolo- with each other or with the costs of controlling
gies do not take place in a vacuum. Such decisions them-decisionmakers are left comparing “ap-
are made in the context of assumptions about the ples and oranges.”4
goals of policy, the intent of the study, and what The approach generally taken in environmental
valuation is intended to achieve. Such assump- cost studies is to express all environmental effects
tions become clearer in the context of debates over in numeric form (quantification) and then to con-

g~ere is a growing Ny of work a~u[ decisions invo]vtig multiple objectives that c~ot be easily compmed (e.g., see Ralph L. KeeneY~
Decisions Wifh Multiple Objecri\es: Preferences and Value Tradeofls (Cambridge, England: Cambridge University Press, 1993). Several utili-
ties are considering techniques that involve weighting and ranking impacts without explicit monetization (Robert L. San Martin, U.S. Depart-
ment of Energy, personal communication, July 7, 1994). However, existing environmental cost studies do not employ these techniques.
48 I Studies of the Environmental Costs of Electricity

Several independent studies have concluded that values and assumptions are fundamental to quan-
titative evaluations of environmental effects. Some of these studies are directly relevant to energy be-
cause they deal with a subset of the issues considered in environmental cost studies ofenergy (e.g., air
pollution from fossil fuels and salmon losses from hydroelectric generation). To the extent that these
smaller studies are strongly influenced by values and assumptions, then the results of energy studies
will be as well. Other studies deal more generally with environmental effects of non-energy activites
(e.g., alachlor),

The Health Benefits of Air Pollution Control


In 1989, the Congressional Research Service (CRS) undertook an extensive review of the health
benefits of air pollution control within the context of the Clean Air Act (CAA). The study involved a review
of literature, six CRS-contracted assessments of current knowledge and methods, and a colloquium at
which the authors and commentators discussed the studies and their implications. The study con-
cludes:
. . . it is not currently feasible to produce an unambiguous evaluation of the health benefits of controlling air pollu-
tion . . . Estimates vary greatly, for two primary reasons: First, scientific uncertainties and data limitations neces-
sarily result in estimates based on interpolations, projections, and assumptions. Second, the different profes-
sional orientations, personal values concerning environmental quality, and varying interpretations of the goals
and procedures of the CAA lead assessors to differing views on what benefits mean, how they can be validly
estimated, and what assumptions to make in the face of major uncertainties.

Endangered Species Act and the Pacific Northwest Salmon


Since 1984, researchers at Resources for the Future (RFF), a Washington-based independent re-
search organization, have been studying the effects of hydropower on salmon populations in the Pacific
Northwest. In summarizing some of RFF’s recent experience with economic assessments of the costs
and benefits of salmon preservation and restoration efforts, three researchers concluded:
Traditional analyses do not easily capture or suitably address many of the different values associated with
species preservation, ways-of-life, job-security, community stability, etc., particularly with the reductionist ap-
proach characteristic of most natural and social sciences . . . It is clear that all disciplines and much scientific
analysis rest on a set of values which shape the focus and methodology of the analysis of many policy issues. The
information of a single analysis is thus constrained by its value base. Particularly in the case of species preserva-
tion, the oftentimes narrowly-focused values of a reductionist approach are less-than-ideal information provid-
ers to a policy problem that begs for insight into multiple values.

The Risks of Alachlor


Researchers from the Institute for Risk Research at the University of Waterloo in Canada examined
the Canadian debate over the risks of the chemical herbicide alachlor. In a 1991 study, they conclude:
. the debate over the risk of alachlor isnot primarily a debate between those who accept the verdict of scientific
! .

risk estimation and those who do not. It is not a conflict between those who understand the “objective” risks of
alachlor and those who are guided by an irrational “subjective” perception of its risks. Neither is it primarily a
debate within science itself. Rather, it is primarily a political debat-a debate among different value frameworks,
different ways of thinking about moral values, different conceptions of society, and different attitudes toward
technology and toward risk-taking itself,

SOURCES: U.S. Congress, Congressional Research Service, Hea/th Benefits of~i Po//ution Corttro/: A Discussion, 89-161ENR
(Washington, DC: Feb. 27, 1989, pp. 1-2); Jeffrey B. Hyman et al., Resources for the Future, “Dollars and Sense Under the Endan-
gered Species Act: Incorporating Diverse Viewpointsin Recovery Planning for Pacific Northwest salmon,” Discussion Paper
QE93-11, 1993, p. 11; Conrad G. Brunk et al., Va/ue Assumptions in Risk Assessment: A Case Study of the A/ach/or Controversy
(Waterloo, Canada: Wilfred Laurier Press, 1991) pp. 6-7,
Chapter4 Assumptions in Environmental Cost Studies 149

vert those numbers to a single unit of measure enough to be ignored. Nearly every study explicit-
such as dollars (monetization).s The total mone- ly notes broad classes of environmental costs that
tary value of an energy source’s environmental ef- were not monetized.
fects can then be compared easily with the total
costs of other sources and with the costs of con- Critiques of Quantification
trolling those effects. If all effects of an energy Environmental cost studies focus on effects that
source can be expressed in a monetary value, then can be expressed in quantitative terms. These
two or more electricity generating technologies terms are easier to discuss and handle analytically,
can be easily compared, and the option with the and they can be presented in tables and graphs.
lowest total cost is clearly preferable. The costs of The quantified results of environmental cost stud-
an energy source’s environmental damages also ies are almost always featured prominently when
can be compared with the costs of controlling the results of studies are reported in technical liter-
those damages—helping to decide whether addi- ature and news accounts.
tional controls are warranted. If multiple units of Accurate quantitative results can be among the
measurement are used (e.g., dollars, lives, and most useful outcomes of an environmental cost
acres of forest), then simple quantitative compari- study. If well presented, quantitative results can
son becomes difficult or impossible. communicate a study’s findings clearly, and they
All the studies discussed in this report quantify can give readers an idea of the relative magnitude
and monetize at least some of the effects they iden- of different sources of effects that have the same
tify. 6 Several authors note that important classes units of measure. Quantitative results also can be
of effects were either not quantified or not mone- used easily by other analysts who are building on
tized in their studies. For example, Pace did not the work of the original study.
produce monetized estimates for impacts from These advantages have led many analysts to
greenhouse gases such as methane (CH 3) and ni- pursue environmental cost studies—to quantify
trous oxide (N20), air toxics, water use, land use, important environmental effects not currently
solid waste disposal, or the extraction and trans- quantified and thus not included in energy deci-
portation of fossil and nuclear fuels. Similarly, sionmaking. Their success, however, has been
Hohmeyer did not produce monetized estimates incomplete. A variety of effects remains unquanti-
for impacts such as the psycho-social costs of fiable. Most environmental effects of energy
deaths and illness, health care costs, the costs of sources have consequences that cannot be quanti-
losing biological species, certain costs of climatic fied.
changes, environmental costs of routine operation Several analysts urge caution in the use of
of nuclear plants, and aesthetic and land-use costs quantification and contend that nonquantitative
of renewable energy. results of environmental cost studies are at least as
All of the studies reviewed in chapter 2 mone- important as quantitative results.7 Focusing only
tize the damages deemed reasonable by the on quantitative results may construe the results of
study’s authors. However, not all studies include studies so narrowly that the studies’ main points
the same damages. Damages may be excluded be- are missed. Underlying much of the environmen-
cause a study’s authors thought a damage was un- tal cost literature, however, is a strong drive to es-
quantifiable, or because they thought it was small

5~1s ~pproa~h is, a]mos[ @ definition, pafi of ~ environmental COSt study.


60~er ~[udi~~ ~f~e ~nvlronmen[a] effects of energy sources rigorously avoid producing rnOne[iZecJ estimates of any kind. For example, see
John P. Holdren et al., “Environmental Aspects of Renewable Energy Sources,” Annual Review of Energy, vol. 5, 1980, pp. 241-291.
7
See footnote 3.
50 I Studies of the Environmental Costs of Electricity

timate and report quantitative results, often to the harms’ probability and consequences may dif-
exclusion of nonquantitative ones. fer substantially. For example, nuclear reactor
Some studies (e.g., Shuman and Cavanagh) accidents represent a large portion of the envi-
make an attempt to estimate even highly specula- ronmental costs of nuclear power in some stud-
tive effects, choosing to reflect the uncertainty in ies. Such accidents are relatively unlikely, but
the ranges of the final results, rather than not in- could have extremely large consequences if
clude any estimates at all. Many other studies, they were to occur. Other risks (e.g., mining
however, only note that certain effects were not deaths and injuries) are relatively certain and
considered. have comparably small consequences. Com-
paring or combining these two risks can be
Critiques of Monetization problematic.
Monetization attaches estimates of value (most ● Distribution of damages across space, time,

often expressed in dollars) to environmental ef- and classes of victims: Where, when, and to
fects. In general, these effects first have to be whom impacts occur can affect how risks are
quantified in some way (e.g., days of lowered visi- perceived. For example, effects such as indus-
bility or numbers of acres of forest affected). trial accidents are immediate and affect only
Then, a monetary value is attached to the quanti- workers in a particular industry; global warm-
fied effect by using a valuation technique such as ing may remain a problem for centuries and
contingent valuation, hedonic valuation, or con- may affect people who received little or no
trol costing (for details, see chapter 3). benefit from the electricity generation that led
Supporters argue that monetization is both a to the warming.
useful and inevitable part of energy decisionmak- • Degree of personal control: The likelihood of
ing. Considering no information about an envi- some effects can be reduced by actions taken by
ronmental effect is equivalent to setting a value of affected individuals. For example, drivers can
zero.8 Considering only qualitative information take extra care at railroad crossings to reduce
about an effect is equivalent to some quantitative their own likelihood of being killed or injured
value, although that value is never specified.9 in rail accidents. Other effects, such as air
However, the difficulties of monetizing envi- pollution, are more difficult to avoid.
ronmental effects are so great that some analysts ● Degree of irreversibility: Some environmental

argue against it. The argue that the important char- effects are reversible, others are not. For exam-
acteristics of environmental effects include not ple, reduction of agricultural crop yields can be
only the expected harm,10 but also a range of other compensated for by production elsewhere; a
measures: ll unique ecosystem that is severely harmed by
power plant emissions may be irreplaceable.
| Probability and consequences: Although the
expected harm of two environmental effects Because there is no generally accepted method
may be equivalent, the characteristics of those for combining all of these characteristics into a

9~iel -s ~d Jonath~ hsser, Monetization and Quantijlcation of Environmental Impacts, State of Washington Interagency Task
Force on Environmental Costs, Issue Paper ITF-3 (Olympia, WA: Washington State Energy Office, June 1992), pp. 84-85.
IOEXpected ~rm is usually defined as the probability of an event multiplied by its consequences. For example, if an accident has a 5 IXXcent
probability of Occurnng each year and would result in 200 deaths, then the expected harm would be 10 deaths/year.
I IHol&n, op. cit., foomote 3, p. 243; John P. Holdren, “Energy Hazards: What To Measure, What To Compare,” Technology Review, April
1982, p. 32-39,74-75.
Chapter4 Assumptions in Environmental Cost Studies 151

12
single number, some critics argue that monetiz- In such cases, the inability to quantify and mo-
ing and aggregating environmental effects are in- netize all environmental effects may lead users of
appropriate tasks for analysts. Deciding how to environmental cost studies to underestimate the
weigh the different components of environmental total effects of some energy sources. If important
effects is necessarily a matter of personal values effects of some energy source are inherently diffi-
as well as technical judgment. As a result, such de- cult to quantify and the monetized results domi-
cisions use as much political and social judgment nate the presentation of conclusions, then the
as they do economic and ecological data. study may provide an inaccurate picture, despite
Most critics of aggregation are not arguing that solid analysis.
such valuations should never be made by anyone, In addition, in studies that do not monetize all
only that such decisions should not be made by effects, far more attention must be paid to how re-
13
analysts. Clearly, tradeoffs between environ- sults are presented. Such studies present results
mental harms are necessary to make, but critics ar- that are much more multifaceted and disparate,
gue that such decisions should be made in public and thus require analysts to explore approaches to
forums, not in analysts’ offices. presenting complex data simply and clearly.

Impacts Underlying Assumptions


Merely because a factor cannot be quantified or Decisions about quantifying and monetizing envi-
monetized does not mean it is unimportant. ] 4 For ronmental effects reflect assumptions about the
many conventional sources of energy, some of the policy goals that environmental cost studies are
environmental effects that are potentially the most meant to support and the process by which deci-
damaging are the ones most resistant to convinc- sions about the environment should be made.
ing quantification and monetization. For exam- Studies conducted within an economic frame-
ple, nearly all the environmental cost studies work often assume that economic instruments
reviewed in chapter 2 either explicitly exclude es- (e.g., pollution taxes) are the policy tool of choice.
timates of the costs of global warming or they pro- From this perspective, monetizing environmental
duce estimates they regard as highly speculative. impacts and combining them into a single value is
When studies do make estimates of costs associ- entirely appropriate. Establishing such instru-
ated with global warming, however, it often repre- ments requires that all environmental effects be
sents the largest single category of costs. summarized in a single number-the economic
Unfortunately, nonquantitative results of envi- value of those effects. With such an estimate in
ronmental cost studies are often ignored in prefer- hand, almost all that remains for decisionmakers
ence to results that can be expressed in monetary is to use these values to establish appropriate eco-
terms. Quantified results are easy to cite and sum- nomic incentives for energy producers. In studies
marize, whereas nonquantitative results are diffi- conducted in noneconomic frameworks, there is
cult to convey without long quotations or textual far less agreement and less focus on specific
summaries. As a result, monetized results may re- policy instruments.
ceive more attention in news coverage and sum- Furthermore, different analysts appear to have
maries aimed at policy makers. different assumptions about the preferred process

IZstirling, op. cit., footnote 3, p. 1027-1029.


13HOldren, op. cit., footnote 11, p. 38.
14 Ho]dren Ca]ls his problem “confusing things that are countable with things that cOunt.” Ibid.
52 I Studies of the Environmental Costs of Electricity

for making environmental decisions. Many sup-


porters of monetizing environmental effects argue
Methods
that individual preferences (expressed as mone-
tary values) accurately summarize the overall val- Damage cost Market valuation
Hedonic valuation
ue of any particular effect and that these estimates Contingent valuation
can be added (either across individual people or
Control cost Control cost valuation
across individual effects) to reflect the overall en- Mitigation cost valuation
vironmental effects of an energy source. For ex-
ample, an analyst might derive the cost associated
with decreased visibility from coal emissions by
determining an average individual willingness-to- gent valuation. In contrast, control cost methods
pay from a survey of several thousand consumers circumvent this lengthy process by assuming that
and multiplying this by the total number of per- current environmental regulations implicitly val-
sons whose visibility would be affected. By con- ue the environmental damages that regulations
ducting a similar process for each environmental prevent. By examining the costs that legislative
effect, the analyst would add up all the costs and and regulatory bodies impose on utilities to pre-
derive an overall estimate of damages for coal- vent some environmental damages, analysts can
fired generation. estimate the value of the remaining damages.
However, some critics of monetization argue Control cost methods have been pursued large-
that choices about the environment are inherently ly on pragmatic grounds. In most cases, control
a public function, not an activity that can be done costs are substantially easier to estimate than dam-
outside of a public forum. 15 They claim that valu- age costs. Most analysts who use control cost
ing the environment involves more than individu- methods agree that damage costs would be prefer-
als acting as consumers and responding to surveys able, but they contend that estimating damage
that estimate their willingness to pay for environ- costs is often hopelessly complex. Control costs
mental improvements. Choices about the environ- are a “second-best” solution, they argue—a way
ment necessarily involve individuals acting as of obtaining rough estimates without the immense
citizens involved in public debate, airing differing analytical effort required to estimate damage
viewpoints, allowing individuals to become more costs.
fully informed, and finally choosing a course of Several studies use control cost methods to val-
action through a democratic process. To these crit- ue environmental effects. The studies by Pace,
ics, monetization usurps a public function. Tellus, Chernick and Caverhill, Hohmeyer, and
Shuman and Cavanagh all make at least some use
| Damage Costs VS. Control Costs of control cost methods, although the extent of use
Environmental cost studies differ in the valuation varies widely (see chapter 2 for details). Of the
methods used. Valuation methods are often di- studies reviewed in detail by OTA, only the BPA,
vided into two categories-damage cost methods DOE/EC, and New York State studies make use of
and control cost methods (see table 4-2). Damage
cost methods trace the effects of energy generation
from emissions to eventual environmental dam-
ages. The monetary value of those damages are
then estimated using market, hedonic, and contin-

15MWk SagOff, The Economy of the Earth: philosophy, Law, ad the Environment (Cambridge, England: Cambridge unb/f3rSitY PIWS,

1988).
Chapter4 Assumptions in Environmental Cost Studies 153

damage cost approaches exclusively.lb Control based on damage costs. For example, studies of
costs also are used by many state regulatory com- individual judgments about risks are notorious for
missions that have incorporated environmental finding seemingly “irrational” choices.20 These
costs into utility requirements. choices presumably would be reflected in pur-
chasing decisions and survey responses and thus
Critiques would afflict damage cost methods such as hedon-
Studies that have used control cost approaches ic and contingent valuation. This has been borne
17
have drawn heavy criticism. For example, crit- out in contingent valuation surveys, where actual
ics argue that public decisions do not represent a responses do not match the theoretical predictions
consistent and rigorous weighing of costs and of optimal consumer behavior (see chapter 3).
benefits. Several studies have indicated that dif- In fact, it is arguable that methods based on “re-
ferent regulations result in widely varying costs vealed preferences,” whether they be the revealed
per life saved.18 Such evidence is used to bolster preferences of regulators (e.g., control cost valua-
the claim that current regulations are not economi- tion) or consumers (e.g., hedonic valuation), are
cally efficient. Regulators either lack the ap- more likely to reveal accurate answers than con-
propriate information or, as in the Clean Air Act, tingent valuation estimates. Revealed preference
are barred from considering the costs of control. methods, at least, have the benefit of operating un-
Thus, critics argue, the implicit values assigned by der some budget constraints and requiring real ac-
environmental regulations are likely to be incor- tions on the part of participants. In contrast,
rect. contingent valuation operates mainly within a hy-
Supporters of control cost methods argue that, pothetical realm of what respondents say that they
although control costing is imperfect, it represents would do under the given circumstances, and past
the only currently feasible way to evaluate most surveys have often lacked a budget constraint.
costs. 19 Damage cost methods require an under- In addition to these methodological problems,
standing of the emission of pollutants, the trans- however, some critics believe that control cost
port of those pollutants, the exposure of humans methods have an even greater flaw. They argue
and ecosystems, and the dose/response relation- that control cost methods are not just inaccurate,
ship of those exposed. This multiplies the number but are nonsensical because they assume precisely
of assumptions that a study must make and leaves what they should be trying to evaluate—whether
room for substantial bias and error. current environmental regulations are economi-
In addition, the same problems that afflict esti- cally efficient. Because the goal of evaluating en-
mates based on control costs afflict estimates vironmental costs is to balance the costs and

16Mmy s~dies m~e only limited use of con~o] cost valuation. For example, the pace study uses COI’ItTO] cost vah.IatlOn SOk]y tO eStiIYMk

damages for C02 emissions. Studies such as Pace nonetheless are labeled “control cost studies” by control cost critics. During reviews of draft
versions of this report, several reviewers labeled the eight studies that OTA reviewed as “damage cost studies” or “control cost studies. ” How-
ever, there was little agreement in the assignment of those labels.
ITFor example, see Paul L. Joskow, “Weighing Environmental Externalities: Let’s Do It Right!” The E/ec(ricify Journa/, May 1992, pp.
53-67; Staff of the Federal Energy Regulatory Commission, op. cit., footnote 2.
]8For example, see John F. Mona]], ‘*A Review of the Record,” Regulation, November/December 1986 PP. *5-34.
Igstephen Bemow and Dona]d MmOn, Va/uation of En\>ironmental Externalities for Energy Pianning and operations 1990, May 1990
Upd-ue (Boston, MA: Tellus Institute, May 18, 1990); Paul Chemick and Emily Caverhill. “Methods of Valuing Environmental Externalities,”
The Electrici~Journal, March 1991, pp. 46-53.
Zoln studies of ei~er individual or regulatq decisionrnaking, the definition of “rational” or “consistent” decisionmaking is often based on
expected harm (e.g., probability times consequences).
54 I Studies of the Environmental Costs of Electricity

benefits of environmental controls appropriately, First, according to these critics, current regula-
they argue, then using control costs as a measure tions already overcontrol some pollutants. Using
of environmental benefits entails circular reason- control costs for these regulations overestimates
ing. 21,22 To allow balancing of costs and benefits, the value of the remaining emissions. Second, us-
the estimates of these two quantities should be ar- ing the highest cost of control, as some studies
rived at independently. do,25 purposely selects for high values. These val-
ues may be too high due to ignorance or miscal-
Impacts culation, not because of careful evaluation about
There is disagreement over the impact of using the costs citizens are willing to pay to avoid envi-
control cost methods rather than damage cost ronmental damages. Using the highest cost of
methods. Supporters of control costing often ar- control, critics argue, is likely to inflate environ-
gue that the methods probably underestimate the mental cost estimates artificially.
value of environmental effects of energy. Critics
of control costing often argue that the methods Underlying Assumptions
vastly overestimate their value. Part of the dispute over the use of control cost ap-
Control cost methods could underestimate en- proaches stems from underlying disagreements
vironmental costs for several reasons. First, exist- over policy goals and how environmental cost
ing regulations may be an environmental studies should be used to support those policy
“bargain” in the sense that they cost far less than goals.
the nation’s citizens would be willing to pay. Just Critics of control costing often assume a policy
because citizens support one level of spending on goal of economically efficient regulation.2b In this
environmental control or restoration does not framework, consideration of environmental costs
mean they would be unwilling to support even represents a way of reforming environmental
higher costs for the same programs. In this way, regulation—in particular, of reforming current
control cost supporters argue, control costs repre- command-and-control regulations with more
sent only a lower bound on the value of environ- market-based approaches, such as emissions taxes
mental effects .23 In most cases, then, control costs and tradable permits. This type of reform requires
represent an underestimate. Second, some argue a balancing of economic costs and benefits. With-
that current environmental regulations systemati- in such a framework, the use of control cost meth-
cally undercontrol environmental effects due to ods appears to be nonsensical because it equates
24
political reasons. If this is true, then control cost costs and benefits-using the costs of pollution
methods would systematically underestimate the controls to estimate the benefits associated with
value of environmental effects. those controls.
Conversely, some critics claim that control cost Outside an economic framework, however,
methods may overestimate environmental costs. control costing appears far more acceptable. Sup-
Chapter4 Assumptions in Environmental Cost Studies 55

porters of control costs genera lly are interested in how environmental problems are viewed and is-
policy goals other than economic efficiency. sues about what groups are invested with the pow-
Policy goals such as protection of health and safe- er to make decisions that affect the health of
ty, sustainability, and equity do not focus on bal- individuals and ecosystems.
ancing costs and benefits. In addition, supporters
of control costs generally are more interested in
the overall ability to compare the effects of energy
I Average Effects vs. Marginal Effects
sources than in implementing specific market in- One approach to determining the environmental
centives. 27 From these perspectives, control costs effects of individual generating plants is to con-
appear to be a more valid method for arriving at es- sider their average effect. For example, to deter-
timates of environmental costs. The fact that they mine the S02 emissions of an oil-fired plant, an
derive from existing regulations is important only analyst might find out the emissions of a random
in evaluating their accuracy, not their overall legit- sample of generating plants and find the average
imacy. number of pounds of S0 2 emitted per kilowatt-
Of course, the fact that some uses exist for con- hour of electricity that reaches consumers. Simi-
trol cost methods does not excuse their use for pur- larly, an analyst attempting to determine the
poses to which they are not suited. If the goal of environmental impact of a pound of S0 2 might
a particular environmental cost analysis is to bal- find the overall damages attributed to S0 2 emis-
ance costs and benefits, then control cost methods sions and then divide by the total number of
would embody circular reasoning. However, it is pounds of the pollutant known to be emitted.
equally mistaken to say that control cost methods Another approach is to consider the marginal
have no place whatsoever in environmental cost effect of an individual generating plant. For deci-
analyses that have goals other than economic effi- sionmakers who are deciding whether to build an
ciency. oil-fired plant, the relevant figure is how much
Another portion of the dispute over the use of S0 2 will be emitted by the new plant, not by the
control costing stems from underlying disagree- average plant that is now operating. The average
ments over who should be empowered to make figure will include old plants that are just a few
28
valuation decisions. Proponents of control cost years from retirement as well as new plants that
methods point out that the technique is merely ex- were just constructed. Similarly, the environmen-
tending the coverage of previous decisions made tal impacts associated with an additional pound of
by elected and appointed government officials. S02 maybe substantially different from the aver-
Proponents of damage cost methods often point age damage.
out that their estimates come from studies of con- These examples illustrate the difference be-
sumers (i.e., contingent and hedonic valuation). tween average and marginal effects. Economists
These methods allow individual citizens to ex- are quick to point out that, for most decisions, it
press their will more directly. is the marginal effects that matter. For policy deci-
This issue demonstrates the tight links between sions such as building new power plants, taxing
seemingly technical issues of environmental cost pollutants, and setting emissions limits, the mar-
studies and deeply held values about society and ginal effects indicate what marginal benefits could
decisionmaking. Valuation brings out issues of be achieved by the measures.

ZgShuman and Cavanagh note: ‘The controversy over the ‘true’ value of human life may mask an intractable moral question about who
should make the decision.” Michael Shuman and Ralph Cavanagh, A Model Conservation and Electric Power Plan for the Pacific Northn’es~,
Appendix 2 (Seattle, WA: Northwest Conservation Act Coalition, November 1982).
56 | Studies of the Environmental Costs of Electricity

Marginal analysis does not always involve de- The issue of marginal effects is particularly im-
termining the emissions of new plants. Estimating portant to economists, but ecologists also argue
the marginal cost might also be used for other pur- for considering marginal effects. Ecological re-
poses, such as determining which existing power sponses are often nonlinear.32 Although little eco-
plants to dispatch,29 determining appropriate logical damage may have resulted from current
compensation for those who live near existing levels of pollution, additional amounts can have
plants, or determining what plants to remove from effects that are dramatically worse. Thus, ecolo-
service. gists argue, considering average effects of pollu-
A special case of this problem is location speci- tion may substantially underestimate the effects of
ficity. Some studies attempt to produce national some pollutants.
average estimates of the environmental costs as- Most studies to date have examined average ef-
sociated with different types of generating plants. fects. In general, this has been because of the diffi-
However, local conditions can vary greatly. Fac- culty of examining marginal effects. There is great
tors such as weather, surrounding ecosystems, and uncertainty in the estimation of average effects;
population density all are important inputs to en- marginal effects represent an even greater analyti-
vironmental cost calculations. 30 Some studies cal challenge. However, a few studies have ex-
have dealt with this problem by limiting the study amined site-specific numbers. The DOE/EC
to a relatively homogeneous region; for example, study is focusing on specific sites in an effort to
Shuman and Cavanagh focus on the Pacific avoid this problem. Other studies have empha-
Northwest. Other studies produce different esti- sized the environmental effects of new plants in an
mates for different sites. For example, the BPA ge- effort to avoid some of the pitfalls of considering
neric coal study provides six different estimates of average effects.
environmental costs based on geographic location
and the population of nearby cities. 31 Impacts
The impact of considering average rather than
Critiques marginal effects depends on the effect being ex-
Some environmental cost studies have been criti- amined. Considering average ecological effects
cized for looking only at average effects. Critics probably lowers environmental cost estimates.
argue this misrepresents the options available to Current levels of pollution maybe assimilated by
decisionmakers. Decisionmakers (whether eco- the environment in ways that increased levels
nomic, regulatory, or legislative) can only affect could not be. Similarly, if thresholds exist for eco-
energy generation at the margin (e.g., by choosing logical and human health effects from certain pol-
what plants to construct, modify, or shut down). lutants, then increasing pollutant levels might

Zgstephen Bemow et al., “Full-Cost Dispatch: Incorporating Environmental Externalities in Electric System Operation,” The Electricity
Journal, March 1991, pp. 20-33.
3oOttinger et al., Op. cit., foo~ote 2, pp. 68-69; Alan Krupnick, “The Social Costs of Fuel Cycles: Lessons Learned,” Discussion paper
QE93-04 (Washington, DC: Resources for the Future, 1993), p. 15.
31EC() Nofiwest et a]., Generic c~ai Srudy: Quantification and Valuation ofEnvironmental Impacts, repon commissioned by Bonneville
Power Administration, Jan. 31, 1987.
321n his context, nonlineari~ refers to how an ecological system responds to different levels of Pollutilnts. For many ecological systems.
adding a certain amount of a pollutant can have a small or a large effect, depending on the current level of pollutants already in the system.
Chapter4 Assumptions in Environmental Cost Studies 157

cross those thresholds, resulting in ecological and to ask whether existing environmental regulations
human health effects that were not present pre- already internalize, or account for, these damages
viously. 33 (see box 2-2 for the economic theory of external-
The impact of considering emissions from av- ities and internalization).
erage electric generating plants is less certain. In Many existing environmental cost studies
general, newer plants are cleaner than plants based largely ignore the question of internalization. Of
on older technology, but plant location matters as the six completed studies reviewed by OTA, none
well. A specific plant may have higher or lower systematically considers whether current regula-
emissions depending on how its location tions have internalized some or all environmental
compares with that of the generating plants used costs. The ongoing DOE/EC study will carefully
in the calculations of average environmental delineate between damages34
and externalities for
costs. each damage pathway. The ongoing New York
State study has determined that a few classes of
Underlying Assumptions environmental damages were already internalized
Arguments about the relative merits of consider- and excluded them from further consideration.
ing average and marginal costs rest on assump-
Critiques
tions about the role of environmental cost studies
When reviewing environmental cost studies, util-
in policy. Analysts concerned with economic effi-
ity and industry representatives often respond by
ciency are likely to focus on the importance of
citing the large number of environmental regula-
marginal analysis when considering power plants
tions with which they already comply. A large
and other technological infrastructure. In this
number of existing regulations control human
view, considering average costs will raise envi-
health and environmental impacts of mining,
ronmental cost estimates artificially because, for
construction, transportation, and electricity gen-
example, new plants are cleaner than old ones.
eration activities.
Analysts concerned with sustainability are
Some critics of current environmental cost
more likely to focus on the importance of consid-
studies argue that, if a pollutant is currently regu-
ering marginal effects on ecosystems. In this view,
lated, and utilities are in compliance with that reg-
considering average costs will lower environmen-
ulation, then no economic externality can exist.
tal cost estimates artificially because, for exam-
This argument generally is made from one of two
ple, it will not account for the probability of
perspectives. One perspective is that current regu-
crossing some unknown threshold-beyond
lations accurately weigh environmental costs and
which an ecological system cannot assimilate
benefits. This is the same assumption that some
additional pollutants.
economists criticize when it is used to justify con-
trol costing. However, to the extent that current
| Internalization regulations do balance costs and benefits, it can be
When examining environmental costs, econo- argued that the regulations internalize the environ-
mists are particularly concerned with internaliza- mental costs associated with the pollutants they
tion. Every environmental cost analysis attempts regulate. An alternative perspective is that some
to quantify environmental damages in monetary current regulations require that pollutants be re-
terms, but economists generally go a step further duced to levels where no significant health effects

331t iS ~SSib]e, though probably Unlike]y, that considering average costs rather than marginal COStS would increaSe estimates of environ-
mental costs. For example, there may be situations where “the damage is done” and the marginal damages might be less than the average dam-
ages.
3’$pathway5 are the links between emissions and impacts (See figure 2-1).
58 I Studies of the Environmental Costs of Electricity

occur. For example, the criteria for setting stan- mates of environmental cost. When studies as-
dards under the Clean Air Act is to “protect health sume that regulated pollutants still can produce
with a margin of safety.” By this reasoning, elec- externalities, they will include a larger number of
tricity utilities in compliance with standards effects than if they used a more restrictive defini-
should not produce any significant health effects, tion. For example, risks of occupational deaths
let alone effects that can be considered to be exter- and injuries are assumed, by at least some ana-
nalities. lysts, to be compensated for by increased wages in
Several responses are made to the argument hazardous industries. If environmental costs are
that current regulations completely internalize en- defined as only those effects that are not already
vironmental costs. First, existing regulations nei- included in market prices, then occupational
ther eliminate environmental effects entirely, nor deaths can logically be excluded from total cost
do they effectively balance them against control estimates. If environmental costs are defined more
costs. Health effects remain even after regulation broadly as all environmental effects, however,
and those effects are not always accurately bal- then occupational risks should be included, and
anced against the costs of control.35 Some argue cost estimates will increase.
more broadly that relatively few environmental
impacts are reflected in the market costs of energy,
so largely ignoring internalization is appropri-
Underlying Assumptions
The issue of whether internalization is important
ate. 3G
Second, some supporters of environmental cost depends upon assumptions of what policies envi-
studies reject a strict definition of externalities. ronmental cost studies are intended to support. Es-
They argue that it is important to understand the timating the monetary value of environmental
environmental effects of energy regardless of damages associated with energy production,
whether they are “internalized.” Third, some something all environmental cost studies do, ad-
economists argue that, in some cases, current reg- dresses one question: What is the monetary value
ulations are largely irrelevant to determining ex- of the environmental effects of energy? Evaluat-
ternalities. Instead, studies can use the marginal ing whether those damages are already interna-
environmental damages as a reasonable estimate lized helps to address another question: What
of externalities.37 Consistent with this conclu- should we do about it? Both questions are impor-
sion, some studies, such as the Pace study, argue tant, but a study does not necessarily need to an-
it is important to consider the costs of residual swer the second question in order to be useful.
emissions—those emissions that remain after reg- To achieve a policy goal of economic efficien-
ulations have been imposed. cy, assessing the current degree of internalization
is vital. Estimates of uninternalized environmen-
Impacts tal costs are necessary to achieving economic effi-
Assuming that current regulations eliminate all ciency through economic instruments such as
externalities certainly would produce lower esti- pollution taxes. Without analyzing the degree of

371n Cmes where existing mgu]ations are based on “command and control” and not economic incentives, the correct ItIOIWiry amOUnt 10
add to private costs is equal to marginal damages. A. Myrick Freeman III, et al., “Accounting for Environmental Costs in Electric Utility Re-
source Supply Planning,” Discussion Paper QE92- 14 (Washington, DC: Resources for the Future, 1992).
Chapter4 Assumptions in Environmental Cost Studies 159

internalization achieved by current regulations, it quences of large-scale nuclear reactor accidents


would not be clear where to set pollution taxes.38 are still the subject of substantial debate.
If, however, the intent of an environmental cost How to estimate and represent uncertainty is a
study is to support different policy goals, then the persistent problem for many types of quantitative
degree of internalization may be less important. studies, but it can be a particular problem for envi-
For example, to inform policies concerned with ronmental cost studies.39 The data and relation-
equity, it would be important to know who is af- ships used in environmental cost studies are often
fected by pollutants, even if the effects of those uncertain, and this uncertainty propagates
pollutants are fully internalized in an economic throughout the study and affects the final results.
sense. Merely because utilities are taxed for the Furthermore, uncertainty tends to increase as the
pollutants they generate, for example, says noth- study moves from inputs to final results (e.g.,
ing about whether those affected by the pollutants from emissions to valuation).
are compensated. Systematic treatment of quantitative uncertain-
Thus, for purposes other than economic effi- ty is not easy. The uncertainty of each piece of in-
ciency, it can be useful for studies to estimate the put data must be assessed, and then these
costs of environmental effects, regardless of uncertainties must be combined in a credible way.
whether those effects are already internalized. Analytical methods that combine uncertainties
Furthermore, estimating such costs is necessary often make fairly large assumptions (e.g., that the
before economic externalities can be estimated. In uncertainty associated with one piece of input data
this sense, investigating and detailing all environ- is independent of the uncertainty associated with
mental effects is useful regardless of the policy others). Even with these assumptions, however,
goal. the combination of many uncertain inputs is ana-
lytically challenging.,4041
| Managing Uncertainty
Environmental effects differ in the certainty with Critiques
which they can be established. Some effects are Analysts differ on how to handle uncertainty.
fairly well understood. For example, mining acci- Some analysts argue for a restrictive stance on
dents are a known risk of coal-fired electricity which effects to include. They exclude uncertain
generation. Accurate statistics have been kept for effects because they are too speculative and are
decades and the frequency and magnitude of the likely to artificially inflate estimates of environ-
risk are well understood. Other risks are less cer- mental costs. Other analysts are fairly liberal
tain. For example, the probability and conse- about which effects to include. They include un-

38An added ~omp]ication iS hat internalization represents a moving target. Environmental laws and regulations are frequently altered, SO an
analysis can become outdated quickly.
39 H owever , Uncefiainty is not Unique t. environmental co5t studies. Ofier areas of utility planning and regulation encounter this problem as
well. Paul Chemick, From Here to Eficiency: Securing Demand-Management Resources, Volume 5, Quantifying the Benefits ofDemand Man-
agement (Boston, MA: Resource Insight, Inc., January 1993).
@For additional discussion of his problem, see M. Gr~ger Morgan and Max Henrion, Uncertainty: A Guide to Dealing With Uncerlainv in
Quantitati\’e Risk and Policy Analysis (Cambridge, England: Cambridge University Press, 1990).
41~e Do~Ec study is making ~ extensive effo~ t. rigorously deal with Unceflain[y. me approach used in tie study is intended both to
allow quantitative uncertainty estimates and to provide qualitative information to potential decisionmakers. See Oak Ridge National Laborato-
ry and Resources for the Future, U. S.-EC Fuel Cjcle Stud~: Back~round Document 10 the Approach andlssues, Report No. 1 on the External
Costs and Benefits of Fuel Cycles: A Study by the U.S. Department of Energy and the Commission of the European Communities, ORNIJ
M-2500, November 1992, pp. 2-23-2-26.
60 I Studles of the Environmental Costs of Electricity

certain effects because of concerns about grossly way in which many current studies handle uncer-
underestimating the true effects of energy produc- tainty. Readers are left with a clear idea of the stud-
tion. Finally, some studies give a range of esti- ies’ “best guesses,” but little quantitative idea of
mates, reflecting different thresholds of the possible range of results.
uncertainty.
For example, studies differ in whether they Underlying Assumptions
consider potential damages from global warming Approaches to resolving uncertainty vary greatly
caused by greenhouse gas emissions. Some stud- and rest at least partially on value judgments of the
ies, such as the New York State study, have con- analysts involved. For some, a lack of evidence in-
cluded that the uncertainties of estimating dicates relative safety—if risks were present, then
damages associated with C0 2 are so great that research would have indicated their presence. To
they will not attempt an estimate and will instead others, a lack of evidence indicates how little is
assign a default value of zero. 42 Other studies, known about potential risks—if information is
such as Shuman and Cavanagh, assign a highly lacking, then research may be overlooking impor-
uncertain value to the damages, varying between tant risks.44
zero and more than half of the total damages asso- For example, a recent survey of 22 experts on
ciated with coal generation. the economic impact of global warming demon-
Many current environmental cost studies do strates the different reactions to uncertain evi-
not systematically consider uncertainty through- dence.45 Quantitative studies are unable to predict
out their calculations. In general, the studies make the consequences of global warming with a high
point estimates of potentially uncertain data and degree of certainty, so the survey sought to collect
uncertainty is only discussed in the report’s text, the subjective estimates of various experts. Their
not indicated in the reports’ quantitative results .43 collective judgment might produce estimates of
Point estimates are rarely rounded to reflect their impacts to be used in quantitative models. How-
rough level of accuracy. ever, the survey indicated afar more interesting re-
sult. The subjective estimates of different groups
Impacts varied widely: mainstream economists expressed
A study’s approach to uncertainty can have signif- little concern about potential impacts and were
icant effects on results. Including uncertain envi- confident that human societies would adapt handi-
ronmental effects can only increase the estimates ly to the changes. In contrast, natural scientists ex-
of environmental costs. Ignoring the issue of un- pressed great concern about potentially large and
certainty may make the studies useless from a irreversible destruction of life-sustaining ecosys-
policy standpoint. If the cost differences between tems.
energy sources are significantly smaller than the
range of uncertainty of the estimates, then the esti- | Discounting
mates will be of little value. Whether this is true Discount rates are used to compare economic
of current estimates is difficult to say, given the costs and benefits that occur at different times. A

42 RCG/Hag]er, Bailly, InC., “New York State Environmental Externalities Cost Study Report 1: Externalities Screening and Recommenda-
tions,” ESEERCOPro@ctEP91 -50, December 1993, p. iii. The study’s computer model will allow users to insert their own value for C02 dam-
ages.
qs~en tie DOE-EC studies are released, they may be an important exception.
44Haold p. Gr~n, “’l”he Risk-Benefit Calculus In Safety Determinations,” George Washington University Law Review, vol. 43, No. 3,
March 1975, pp. 791-808.
45Willim D. Nordhaus, “ExFfi Opinion on climatic Chmge,” American Scien~isr, January-February ]994, pp. 45-51.
Chapter4 Assumptions in Environmental Cost Studies 161

positive discount rate indicates that a cost of $10 ply discounting to them (e.g., human deaths and
that will be incurred in five years is worth less than injuries), or because a valuation technique is used
$10 today. How much more depends on the dis- that avoids discounting entirely (e.g., control cost
count rate. For example, if the discount rate is 3 valuation).
percent, a $10 expenditure five years in the future
is only equivalent to $8.59 today.
Critiques
The practice of discounting can reflect many
There are several views on how discount rates
concerns. First, discounting can reflect a funda-
should be used to value environmental resources.
mental human tendency. People would rather have
Some economists and utility experts argue for us-
a good now than later. Second, it can account for
ing rates similar to those used by utilities for valu-
the productive nature of some resources. Between
ing capital investments (e.g., 6 to 8 percent).46
now and some future time, some resources can be
This provides a consistent basis for utility re-
productive, generating revenue for their owners.
source selection decisions, but it also has the ef-
Resources such as farmland and livestock meet
fect of reducing the value of damages that occur
this criterion. Third, discounting can reflect risk
far into the future (e.g., global warming or nuclear
and uncertainty about the future. The practice of
waste storage) to nearly zero.
charging interest on loans is a recognition of the
Many environmentalists argue for using rela-
business risks associated with investments.
tively low discount rates. Low discount rates have
Fourth, discounting can be used to adjust for tech-
the advantage of treating future generations equal-
nological change. Environmental damages in the
ly to our own, but they also may cause relatively
future may be less harmful than today because
certain, near-term effects to be ignored in favor of
new technologies will be developed to mitigate
more uncertain, long-term effects. Future genera-
them.
tions may have new technologies and knowledge
Environmental cost studies use discount rates
that will cheaply and easily deal with long-term
to adjust some cost estimates. For example, Shu-
environmental threats such as global warming or
man and Cavanagh’s study uses a 1 percent dis-
nuclear waste storage.
count rate for property damage and a discount rate
of zero for human lives. In general, environmental
cost studies have applied discounting to only a Impacts
few, long-term effects of electricity generation. High discount rates will produce lower damage
These include the global warming effects of CO2 estimates because they reduce the costs associated
emissions and the long-term risks of nuclear with environmental impacts that occur in the fu-
waste. Because these impacts are often a signifi- ture. For example, a high discount rate will de-
cant component of total environmental cost, dis- crease the importance of the impacts of global
counting can be an important issue. However, warming. The BPA generic coal study explicitly
discounting does not affect the majority of impact ignores the impacts of global warming for this rea-
categories, either because the impact is relatively son.47 Conversely, low discount rates will result
prompt (e.g., oil spills), because studies do not ap- in higher damage estimates.

‘fQtinger et al., op. cit., footnote 2 <

Zti’~ey ~a]cu]ate hat, even if global Wining damages are $5 trillion, because the damages will occur 100 years from now! tie amount
attributable to a single coal plant (after discounting at 3 percent) is less than $8,300 per year (this calculation assumes that coal is only responsi-
ble for 33 percent of all C02 emissions, and that a single plant consumes only 0.001 percent of all coal consumed in the world). The study
ignores this amount because it would add less than 1 percent to the total environmental costs that the study attributes to a generic coal plant. ECO
Northwest et al., op. cit., footnote31, pp. 4-7.
—-—

62 I Studies of the Environmental Costs of Electricity

Underlying Assumptions of the technical details of individual studies often


Some disputes over discount rates can be traced to hide disagreements over basic assumptions.
assumptions about the relative importance of nat-
ural resources (e.g., forests, lakes, and animals) FRAMEWORKS
and technological resources (e.g., roads, dams, The discussion above indicates the wide variety of
and machinery). Applying discount rates to envi- issues that affect environmental cost studies and
ronmental impacts implies an equivalence be- the diversity of assumptions that affect how ana-
tween natural and technological resources. The lysts resolve those issues. The assumptions occur
ability to trade off natural and technological capi- at many different levels of analysis. One way of
tal has been strongly disputed by some ecologists. understanding these assumptions is to divide them
For example, some argue that natural and techno- into three levels: first, the fundamental goals the
logical capital can be more clearly seen as comple- study is intended to support; second, the general
ments than as substitutes—implying that we need strategies used to frame the study; and third, the
both to make use of either.48,49 Although funds specific methods the study uses to make its esti-
used to construct technological systems can be mates.
banked and spent at a later time, the same cannot Table 4-3 provides examples of these frame-
be said of human lives and the important charac- works. The positions outlined are extreme, and
teristics of ecosystems. Similarly, once some eco- rarely adopted in unalloyed form, but they help il-
logical systems are consumed, they may be lustrate different frameworks, the connections
difficult or impossible to regain. within individual frameworks, and the broad
Discounting also raises questions of how much spectrum of possible assumptions that underlie
reliance can be placed on technological solutions environmental cost studies.
to current and future environmental problems.
Advocates of high discount rates sometimes argue | Goals
that technological progress will find solutions to
Analysis of environmental cost issues does not
future environmental harms. Those who advocate
take place in a vacuum. Nearly every analysis be-
low rates do not wish to depend on future progress
gins with a particular view of problems not fully
to mitigate harms that could be prevented today.
addressed by current policies. For example, eco-
nomic analysis of environmental questions often
I Conclusions begins by examining why current markets fail to
These issues do not exhaust the list of situations control environmental effects. Analysis of the
where disputes can be based on underlying as- same issues by environmental groups often begins
sumptions and values, but they provide a starting by noting emerging global environmental threats
point. Each of these issues can affect the outcome that are linked to energy use.
of a environmental cost study, and how each issue These problems often are translated into an im-
is resolved depends largely on an analyst under- plicit or explicit policy goal. Economic efficiency
lying assumptions. The “right” assumptions for is nearly always the presumed goal of economic
an environmental cost study are not clear, and cur- analyses of environmental cost problems. Public
rent debates over environmental cost studies are protection is a traditional goal of much existing
doing little to resolve them. Instead, discussions environmental regulation. Sustainability is quick-

48Here the tem ~omplemenf~ is “~~d in ~ economic sense. complements we defiied by economists a.s hcrn.s whose Cmslmpdm is c]osdy
related. Computer keyboards and monitors are complements—when purchases of one rises or falls, the purchases of the other moves similarly.
4gRo~~ Coswa ~d Herm~ Daly, “Natural Capital and Sustainable Development,” Conservation Biology, vol. 6, 1992, pp. 37-46.
Goals Strategies Methods
What is the source of Role of environmental cost What are environmental Valuation
Policy goal environmental problems? studies in energy policy costs? approach What is value?
Economic Markets do not capture all the Quantify the necessary Externalities— Consumers acting An amount that
efficiency important information for energy corrections to energy markets environmental effects that in markets. consumers are
decisionmaking by producers so that all important are not reflected in current willing to pay for an
and consumers. Existing decisionmaking information can energy prices and that are environmental good
regulations are inefficient. be contained in prices. economically quantifiable. or service.
Compare the total costs and
benefits of a specific policy.

Protection of Energy technologies have Indicate where government Unintended side effects of Legislators and One measure of the
public health created risks to the public that action is necessary to minimize energy use. regulators acting importance of an
and safety are preventable. the health and safety impacts of in political environmental
energy production. systems. effect.
Ecological Existing energy use is not Indicate where government Effects on global or local Scientists acting An indicator that
sustainability ecologically sustainable action is necessary to make ecosystems that are not in scientific can be used to
because individual consumers energy production sustainable. apparent or are not of settings. communicate
act according to their own interest to individual ecological
narrow self-interest, instead of consumers. importance.
considering the impacts of their
actions on the whole
ecosystem.

Equity Disparities in political and Indicate situations where Adverse effects of energy Legislators, An amount that
economic power exist between inequities occur and quantify use that are not borne by regulators, provides just
different members of society. the damages in order to those who benefit. judges, and juries compensation and
Powerful individuals attempt to facilitate compensation. acting in political that punishes unjust
push adverse effects onto and legal actions.
others while retaining the systems.
positive effects for themselves.

SOURCE: Office of Technology Assessment, 1994.


64 I Studies of the Environmental Costs of Electricity

ly becoming the predominant goal underlying I Strategies and Methods


many analyses that take an environmental per- Policy goals often translate fairly directly into
spective. Equity has recently emerged as a con- other important assumptions in environmental
cern about environmental impacts cost studies. Some of these assumptions concern
These policy goals are not mutually exclusive, a study’s strategy (i.e., what role is envisioned for
and few analysts would explicitly advocate pursu- the study in energy policy). Other assumptions
ing only one of them. However, single policy concern methodology (i.e., how the study assigns
goals are often implicitly assumed without sub- value to environmental effects).
stantial attention to other goals. Such an approach Frameworks based on economic efficiency can
is understandable because combining several appear to offer a complete basis for policy, provid-
policy goals is difficult and requires an overarch- ing an extremely clear, although limited, role for
ing organization that needs to be explained and de- policymakers. Economics provides a theoretical
fended. Such an activity goes beyond the scope of description of environmental problems (market
most environmental cost studies. failures), a quantitative strategy for informing
Most existing environmental cost studies fall policy (estimating externalities), methods for car-
primarily within a framework of protecting public rying out that strategy (e.g., contingent valuation),
health and safety. The studies are aimed at identi- and a set of policy tools (e.g., pollution taxes).
fying environmental effects of energy to indicate Critics of exclusively economic approaches ar-
where government action is necessary. They gue, however, that economics is far from a com-
broadly consider all environmental effects of en- plete system. Other important goals such as
ergy, without substantial concern about whether sustainability and equity are not directly ad-
such effects have already been, in a strict econom- dressed by economics, and they can be difficult to
ic sense, internalized by existing regulations. integrate with economic goals.
These studies and their use by state regulatory Most proponents of economic approaches ar-
commissions have been strongly criticized for gue for a more moderate position—that economic
misunderstanding economic concepts. For exam- information supports the creation of policies that
ple, questions have been raised about the use of are economically efficient, and that also achieve
control costing, not accounting for currently inter- other ends such as equity or sustainability. Such a
nalized effects, and using average instead of mar- view, however, presupposes that environmental
ginal effects. Partially in response to these cost studies provide relatively technical and un-
criticisms, the ongoing DOE/EC study falls pre- biased information to policymakers-casting
dominantly within a framework of economic effi- policymakers as the arbiters and integrators of in-
ciency. The study’s authors take pains to explain formation. However, as indicated above, environ-
the specifics of this policy goal, and they point out mental cost studies themselves often embody,
how current studies fail to inform such a policy rather than inform, decisions about assumptions
goal adequately. and values.
Few, if any, studies have approached environ- In addition, the tendency of some environmen-
mental issues from a framework of equity. How- tal cost studies has been to push the boundaries of
ever, environmental equity has been the focus of technical analysis outward, attempting to sub-
intense attention recently, and casual readers of sume progressively larger set of issues within a
environmental cost studies often assume that the quantitative framework. Such quantitative treat-
studies are primarily concerned with equity. In ment can be appealing to policy makers faced with
addition, equity is of great concern to federal difficult decisions. Because economic efficiency
policymakers, particularly Congress.
Chapter4 Assumptions in Environmental Cost Studies 165

goals are more easily treated quantitatively, there studies used in federal and state policymaking?
is a danger they may effectively override other What challenges await if they become more wide-
goals and become the de facto basis for policy. ly used on the federal level? How can they be con-
Careful assessment of the policy role for envi- ducted to best meet the needs of policymakers?
ronmental cost studies is needed, particularly giv- These questions are considered in the next chap-
en current and future attempts to use these studies ter.
on the federal level. How are environmental cost
Roles for
Environmental
Cost Studies in
Policymaking 5

T
his chapter discusses the current state and federal policies
that require the evaluation or use of environmental costs,
and it outlines how environmental cost studies can be
made more useful to federal policy makers. It explains
some of the links between environmental cost studies and policy
and some of the difficulties of applying current studies to federal
policymaking. Although current studies are not being used exten-
sively on the federal level, several new studies soon will be re-
leased, and there is likely to be increased debate over whether to
consider the findings of these future studies when developing fed-
eral policy.l Increased use of environmental cost studies presents
federal policy makers with both pitfalls and opportunities.
CURRENT LAWS AND REGULATIONS
Several policies at the federal and state levels involve explicit
consideration of environmental costs. They demonstrate the vari-
ety of approaches to environmental costing and the ways current
studies are used. I
| Federal Laws
The federal government incorporates environmental cost con-
cepts into a wide variety of legislation and regulations.2 These in-
clude the Energy Policy Act of 1992 (Public Law 102-486,

167
68 I Studies of the Environmental Costs of Electricity

Concerns about the federal budget deficit and the existing tax structure have prompted close ex-
amination of alternative methods of raising revenue, including environmental taxes. Such taxes could
include energy-related policies such as carbon taxes and gasoline taxes, and nonenergy policies such
as charges for municipal solid waste collection, congestion taxes on urban highways, and taxes on
toxic chemical emissions.
Proposals for environmental taxes cite several advantages, First, they offer a source of federal reve-
nue to address the budget deficit. Alternatively, they could be used in a revenue-neutral manner, to
shift away from taxing “goods” (such as income) and toward taxing “bads” (such as pollution). In either
case, the taxes would reduce emissions of the taxed pollutants (such as C0 2) or reduce consumption
of the taxed goods (such as gasoline).
For example, the Clinton Administration proposed a BTU tax in early 1993. The proposal would have
imposed a base rate of 25.7 cents per million BTUs on coal, natural gas, nuclear power, hydroelectrici-
ty, home heating oil, liquefied petroleum gases and imported electricity. An additional tax of 34,2 cents
per million BTUs would have been imposed on gasoline and other refined petroleum products, The
measure was designed to raise $50 billion between 1994 and 1997, as well as reduce emissions of C02
and cut imports of oil.
Even prior to these measures, however, the federal government collected some revenue from envi-
ronmental sources, in 1992, the federal government collected an estimated $7.6 billion in revenues from
natural resources and environment-related sources (see table below), about half of one percent of the
federal budget, While these federal revenues are not directly related to environmental damage, they do
reflect charges for natural resource depletion (in the case of the leasing and land use fees) and indirect
pollution (in the case of the environmental penalties and CFC taxes).

Sources of Federal Revenues from the Environment (1992)


Amount
(billion $) Source
2,8 Leasing and extraction of oil, natural gas, and minerals
2.0 Penalties and recoveries from environmental cleanup
1,6 Fees from timber harvesting, grazing, and other land use
0662 Taxes on chlorofluorocarbons
SOURCE Council on Environmental Quaility, Environmental Quality: 23rd Annual Report of the Council on Environ-
mental Quality (Washington, DC: U.S. Government Printing Office, 1993).

Environmental taxes can be an unstable revenue source, however. To the extent that environmental
taxes discourage pollution, they also reduce the revenue that they generate. Unless the tax rate is pro-
portionally increased, the tax receipts will decline. If this effect is relatively mild and temporary, it may
represent more of a start-up problem than a long-term liability of environmental taxes. If, however, it is
feasible to completely eliminate a taxed pollutant, then the revenue source will disappear entirely.

SOURCES: Robert Repetto et al,, Green Fees: How a Tax Shift Can work for the Environrnent and the Economy, (Washington, DC:
World Resources Institute, November 1992); and Margaret Kriz, “A Green Tax?” National Journal, Apr. 17, 1993, pp. 917-920,

the Clean Air Act Amendments of 1990 (Public The Energy Policy Act of 1992
Law 101-549, the Pacific Northwest Electric This act requires the Secretary of Energy to devel-
Power Planning and Conservation Act of 1980 op a least-cost energy strategy to promote energy
(Public Law 96-501), and certain pending legisla- efficiency and limit the emission of carbon diox-
tion.
Chapter5 Roles for Environmental Cost Studies in Policymaking 169

ide (C02) and other greenhouse gases. In develop- The Pacific Northwest Electric Power
ing the strategy, the Secretary is directed to “take Planning Act of 1980
into consideration the economic, energy, social, This act requires that the Northwest Power Plan-
environmental, and competitive costs and bene- ning Council develop a methodology for deter-
3
fits . . . of his choices.” Assumptions are explicit- mining quantifiable environmental costs and
ly identified as an important component of the benefits, and apply it to help determine the total
least-cost energy strategy. The act states that” the system cost of energy resources.7 The act resulted
Secretary shall include in the least-cost energy in the studies commissioned by the Bonneville
strategy an identification of all of the assumptions Power Administration (BPA), as well as the Shu-
used in developing the strategy and priorities man and Cavanagh study, which was supported by
thereunder, and the reasons for such assump- a set of environmental, citizens, labor, and rate-
tions.”4 payer groups.

The Clean Air Act Amendments of 1990 Pending legislation


The 1990 Clean Air Act Amendments (CAAA) In addition to the policies discussed above, Con-
requires that the Environmental Protection gress currently is considering some measures with
Agency (EPA) conduct periodic, comprehensive a connection to environmental cost analysis. For
analyses of the costs, benefits, and other effects of example, much of the debate over whether to ele-
the act.5 In considering benefits, the analysis is to vate the EPA to cabinet-level status has concerned
include all economic, public health, and environ- whether the new agency would be required to
mental benefits of efforts to comply with provi- perform cost-benefit analysis of proposed regula-
sions of the act. b The amendments specifically tions. Proponents of a larger role for risk assess-
reference quantitative studies of environmental ment in EPA decisionmaking argue it would help
benefits, noting that in cases where numerical val- the agency set priorities and ensure that regula-
ues are assigned to the act’s benefits, a default as- tions are cost-effective. Opponents argue that re-
sumption of a zero value shall not be used, unless quiring quantitative risk assessments will leave
it is supported by specific data. This is intended to the agency inflexible and open to endless scien-
combat the practice of counting only the effects tific debate.8 Although environmental cost stud-
that can be quantified and assuming that all un- ies of electricity generation represent only a small
quantified effects are unimportant (and thus have subset of proposed EPA studies, they highlight
a zero value). EPA is also directed to assess how some of the issues and controversies likely to sur-
the benefits of the act are measured in order to en- round broader use of cost-benefit analysis for
sure that damage to human health and the environ- evaluating regulations.
ment is accurately measured and taken into
account.

342 USC. tj 13382(@.


442 U.S.CO ~ 13382(e).
542 us-c. ~ 7612(a) and (b).
6~e temino]ogy here can ~ Confisingo me amendments refer to the “environmental benefits” of the Clean Air Act, whereas most s~dies
refer to the “environmental costs” of energy production. The terms are practically equivalent, although there is a subtle difference; environmen-
tal costs of energy production refers to those effects that could be avoided through additional pollution controls; environmental benefits of exist-
ing regulations refers to those effects that are already avoided with existing controls. In either case, the analytical approaches are similw.
716 uSC. ~ 839.

8G. Lee, ‘s~alyz~g Risk Assessment at EpA,” The wu~hington Post, Mar. 8, 1994, p. Al 7.
—.

70 I Studies of the Environmental Costs of Electricity

I State Laws and Regulations surrounding current environmental cost studies


Estimates of environmental costs are important 10 can be traced back to differences in underlying as-
a variety of state energy policies. Many state poli- sumptions. These assumptions are more likely to
cies require that electric utilities consider environ- be reflected in, rather than resolved by, current
mental costs in some way when they choose studies. Consequently, users of environmental
among electricity supply options (see figure 5-1 ).9 cost studies need to evaluate the studies’ assump-
Nineteen states require utilities to use quantitative tions carefully, lest they unintentionally accept as-
estimates of environmental costs, including such sumptions that do not match their own.
measures as adding monetary amounts to prices Technical and methodological critiques of so-
based on emissions per ton of pollutant. 10 A n cial cost studies are important, but they are not the
additional 10 states and the District of Columbia only important critiques. A study may be techni-
require the use of qualitative criteria that attempt cally excellent, yet not meet the needs of Congress
to account for environmental costs.l 1 Qualitative and executive branch agencies. The values and as-
requirements include such measures as listing var- sumptions of any particular study may or may not
ious environmental impacts in proposals for new overlap with those of particular policy makers. If a
generating capacity. Three other states have legis- study’s values and assumptions differ radically
lative or regulatory activities in process that may from those of the relevant decisionmakers, they
lead to requirements for quantitative or qualitative may reject the study on those grounds alone. Such
consideration of environmental costs. 12 an action would not be “ignoring science” but
would constitute the legitimate exercise of these
MAKING STUDIES MORE USEFUL IN policymakers’ public responsibilities.
FEDERAL POLICYMAKING
When environmental cost studies are used in fu- I Moving Beyond Evaluation
ture federal energy policy, they will be subject 10 Consideration of the assumptions that underlie
continuing disputes over methodology and re- environmental cost estimates is particularly im-
sults. Among these disputes are those over which portant for federal policymakers because the as-
methods are preferable in theory and which are sumptions of some current studies may not be
possible in practice. Such disputes are responsible relevant to their needs. Some current studies as-
for some, although not all, of the controversy over sume a context of state public utility commissions
using control cost approaches rather than damage (PUCs) and their regulation of utilities. In many
cost approaches, using average rather than mar- cases, PUCs have funded the studies, or their ac-
ginal costs, and assessing the degree of internal- tions prompted other organizations such as utili-
ization (see chapter 4 for an extended discussion). ties, utility groups, and environmental groups to
More importantly, however, disputes will con- fund them.
tinue because of differing assumptions about As a result, existing studies tend to be cast
goals, strategies, and methods. As described in largely in an evaluative role—that is, they help de-
chapter 4, many of the most contentious issues cisionmakers choose among a fixed set of alterna-

91nfomatjon abut sPcific state regulations is drawn from F,mg and Galen, op. cit, footnote 1.
IoSeven s~tes (Califofia, Massachusetts, Minnesota, Nevada, New York, Oregon, and Wisconsin) specify monetary values by emission.
One state (New Jersey) specifies a monetary amount by energy typ: (e.g., electricity or gas). Two states (Iowa and Vermont) specify percentage
values by energy type. Nine states (Arizona, Georgia, Hawaii, Ilhnois, Missouri, Montana, Ohio, Texas, and Utah) require a quantitative ap-
proach without specifying the method.
I I Arkansas, Colorado, Connecticut, Delaware, Idaho, North Carolina, Pennsylvania, South Carolina, Washington, and west Virginia.
12 Kansas, Oklahoma, and New Mexico.
Chapter5 Roles for Environmental Cost Studies in Policymaking 171

No requirements
Qualitative requirements
Quantitative requirements

tives for electricity generation. PUCs are largely current use of environmental cost studies. Choices
concerned with influencing utilities’ decision- about pollution control technologies, mining and
making processes, and environmental cost studies transportation safety, power plant siting, waste
have been used to inform PUC efforts. In some disposal, and impact mitigation approaches all af-
cases, this influence is explicit; some states re- fect the overall environmental costs of particular
quire utilities to add certain monetary values, energy sources. All these ways to affect the design
derived from environmental cost studies, to the and management of energy technologies are open
estimated production costs of new facilities when to federal (and state) legislators and regulators, al-
the utilities consider capacity expansion. In other though current studies generally are not oriented
cases, this influence is implicit; some states re- toward informing such approaches. Because of
quire utilities to derive and use their own cost val- this, existing environmental cost studies may give
ues. In both situations, the emphasis has been on a mistaken impression of the opportunities for
deriving a total cost figure that is used to choose minimizing the environmental costs of electricity
among electricity generating technologies. generation.
The characteristics of energy technologies are For example, risks to workers in energy-related
substantially more malleable than implied by the industries can contribute to high overall figures
72 I Studies of the Environmental Costs of Electricity

for the environmental cost of electricity genera- one important role for environmental cost studies
tion. These figures may indicate that an energy is to suggest how electricity generating technolo-
source relies on inherently hazardous operations, gies can be changed so they are more acceptable to
but it also may indicate that safety practices in society, rather than merely to indicate they should
those industries are not as well developed as in be used to a greater or lesser degree.
others. The appropriate policy decision may be
not to reduce use of the energy sources that rely cn
the hazardous industry, but instead to increase ef-
| Emphasizing Nonquantitative Results
forts to understand and control the industry’s haz- The impact of the assumptions and values implicit
ards. 13 in different estimates is large enough that isolated
In the past, the breadth of policy opportunities quantitative estimates of environmental cost are
has not been lost on federal legislators and regula- nearly meaningless. Such estimates become
tors. During the past two decades, Congress and meaningful only in the context of a study’s as-
federal regulatory agencies have become active] y sumptions and of the environmental effects that
involved in the technological design of electrical.y are included and excluded. This conclusion indi-
generating technologies-particularly by man- cates that isolated quantitative estimates of envi-
dating air pollution control equipment and by ronmental cost studies should not be presented as
funding research in improved technologies. This the final results of a study. This practice improper-
approach to federal regulation has alarmed some ly focuses attention on the numerical results, rath-
observers and is partly responsible for the in- er than on the study’s assumptions.
creased interest in alternatives to command-and- Analysts themselves are often aware of the lim-
control regulations. This, in turn, has increased itations of their methods, but that awareness does
interest in economic approaches to environmental not always affect how studies are reported and
control and in studies of environmental costs. used. For example, most environmental cost stud-
In many ways, the use of environmental cost ies to date have emphasized the tentative nature of
studies is analogous to the use of another type of their own quantitative estimates, the classes of ef-
environmental assessment that has recently fects they did not consider, and the importance of
gained popularity-life-cycle assessment (LCA). additional research. After the studies are pub-
LCAs attempt to quantify the total environmental lished, however, their results are often stripped of
damage attributable to a particular product be- this important context and merely portrayed in nu-
cause of its production, use, and disposal. They al- merical form.
low two products to be compared based on their Environmental cost studies often focus on what
environmental characteristics. For example, appears to be the “bottom line’ ’—the monetary
LCAs have been conducted for disposable and value of environmental effects. In many cases, this
cloth diapers, paper and styrofoam cups, and plas- is the most speculative and controversial aspect of
tic and paper shopping bags. After several years of the study, and effects that are not monetized are
debate, recent reports have concluded that LCAs often ignored. In contrast, focusing on the earlier
are more useful as a tool for examining and im- components of the study (e.g., the emissions and
proving design and production processes than impacts stages) would emphasize aspects that are
they are as a method of selecting products with su- most amenable to scientific and technical resolu-
perior environmental characteristics. 14 Similarly, tion.

13John p. Hol&en, “Energy Hazards: What To Measure, What To Compare,” Technology Review April 1982, P. 74.
14u.s. Congress, Offlce of Technology Assessment, Green Products by Design: Choicesfor a Cleaner Environment, OTA-E-541 (Wash-
ington, DC: Government Printing OffIce, September 1992).
Chapter5 Roles for Environmental Cost Studies in Policymaking 173

This does not imply that monetization is a fun- inform and enlighten public debate.
damentally flawed enterprise. However, by its If the assumptions and embedded values of en-
very nature, monetization allows results of envi- vironmental cost studies are explained carefully,
ronmental cost studies to be reported in a highly and if summary results present both quantitative
aggregated form. This encourages use of results and qualitative aspects, they can be useful for leg-
without full understanding of the assumptions and islative purposes. Quantitative aspects include not
values that underlie them. Placing greater empha- only final environmental cost estimates, but also
sis on reporting results of earlier phases of the disaggregated results showing the relative impor-
analysis (e.g., emissions and impacts assess- tance of various factors to the final estimate, sensi-
ments), and on clearly explaining the assumptions tivity analyses showing how the results vary when
and values that underlie estimates of monetary important inputs are varied, and an analysis of the
damages, would help make the studies more valu- uncertainty associated with important quantita-
able for use in federal policymaking. tive values. Qualitative aspects include identify-
ing emissions that account for the majority of the
| Informing Legislative Decisionmaking impacts in specific impact categories, identifying
A focus on disaggregated results and on explain- alternative assumptions that will substantially al-
ing assumptions and values is important for rea- ter the quantitative results, and identifying how
sons beyond mere accurate reporting or analytical the results compare with other similar studies.
convenience. Decisions about values are not the Clearly, this approach to analyzing and presenting
province of technical analysis. Instead, they be- environmental cost estimates poses a substantial
long in a public arena to be debated and decided challenge. However, without such an approach,
by citizens and their publicly elected officials. environmental cost studies may prove to be of
Only when quantitative analyses clearly identify little use to policymakers.
their underlying assumptions and values can they
I ndex
A California emission standards, 26
Air emissions California Energy Commission study, 19-20
Chernick and Caverhill study, 26 Cavanagh, Ralph, 30
Tellus Institute study, 23-24,26,42 Caverhill, Emily, 26
Alachlor risks, 48 Chernick, Paul, 26
Assumptions Chernick and Caverhill study
average effects versus marginal effects, 55-57 categorization of effects, 20
damage costs versus control costs, 52-55 control cost methods, 52
discounting, 60-62 generation technology, 20-21
federal policymaking and, 46,70 history and quantitative results summary, 26
frameworks of, 62-65 interstudy comparisons, 33
goals, 62,64 Clean Air Act, 48,53,58
influence on studies, 45 Clean Air Act Amendments of 1990,6,68,69
internalization, 57-59 Clinton administration, 68
managing uncertainty, 59-60 Commission of the European Communities, 21-22,
methods, 64-65 26. See also DOE/EC study
monetization, 47, 49, 50-52 Comparison of studies. See Study comparisons
other studies on values and assumptions, 48 Computer model
quantification, 47,49-50,51-52 New York State study, 22
strategies, 64-65 Congress. See Federal policymaking
Australia study, 19-20 Congressional Research Service, 48
Average vs. marginal effects, 55-57 Contingent valuation
criticisms, 41
B definition, 4,37
Bernow, Stephen, 23 non-use values and, 39, 40
Biewald, Bruce, 23 purpose, 39,41
Biosystems Analysis, 29 Control cost methods
Bonneville Power Administration study critiques, 53-54
contingent valuation, 39 damage cost methods comparison, 52-55
damage cost methods, 52-53 definition, 4
discount rates, 61 impacts, 54
hedonic valuation, 38-39 supporters of, 43
history and quantitative results summary, 28-30 Tellus Institute study, 24-26
interstudy comparisons, 32, 36 underlying assumptions, 54-55
market valuation, 38 use in current cost studies, 38, 42
Boston Gas Co., 15,26 Criteria used for selected studies
BPA study. See Bonneville Power Administration comprehensiveness, 13
study influence, 13
methodological discussion, 15
c CRS. See Congressional Research Service
CAAA. See Clean Air Act Amendments of 1990 CV. See Contingent valuation

I 75
76 Studies of the Environmental Costs of Electricity

D assumptions and, 46
Damage cost methods emphasis on nonquantitative results, 7,72-73
control cost methods comparison, 52-55 environmental costs and federal revenue, 68
DOE/EC study, 22 federal laws, 6,67-69
supporters of,-43 informing legislative decisionmaking, 7-8
Damage evaluation, 11. See also Stages of mismatch of state and federal goals, 6-7
environmental cost studies pending legislation, 69
Department of Energy/Commission of the European roles for environmental cost studies in, 67-73
Communities. See DOE/EC study usefulness of disaggregated results, 7,73
Discounting Federal Republic of Germany
critiques, 61 Hohmeyer study, 26-27
impacts, 61 Fossil fuels
purpose, 60-61 Hohmeyer’s study, 20
underlying assumptions, 62 Pace study, 23
DOE. See DOE/EC study; U.S. Department of study differences, 15
Energy Frameworks of assumptions
DOE/EC study. See also Commission of the fundamental goals, 62,64
European Communities; U.S. Department of methods, 64-65
Energy strategies, 64-65
advances over older studies, 7 Fraunhofer-Institute for Systems and Innovation
contingent valuation, 39 Research, 26
damage cost methods, 52-53
focus on specific sites, 56 H
fundamental goals, 64 Health impacts
history and quantitative results summary, 21-22 Hohmeyer study, 28
internalization, 57 Shuman and Cavanagh study, 30
Hedonic valuation, 4,37,38-39
Hohmeyer, Olav, 26
E Hohmeyer study
EC. See Commission of the European Communities; categorization of effects, 20
DOE/EC study control cost methods, 52
ECO Northwest, 29 history and quantitative results summary, 26-28
Ecological systems, 11 interstudy comparisons, 36
Electric Power Research Institute, 22 mitigation cost valuation, 43
Emissions identification, 10-11. See also Stages of monetization of effects, 49
environmental cost studies technology specificity, 20-21
Empire State Electric Energy Research Corporation,
22
Energy Policy Act of 1992,6,67,68-69 I
Environmental effects. See also Stages of Impacts. See also Stages of environmental cost
environmental cost studies studies
average effects versus marginal effects, 55-57 average versus marginal effects, 56-57
Environmental Protection Agency, 6,69 control cost methods, 54
EPA. See Environmental Protection Agency discount rates, 61
EPRI See Electric Power Research Institute emissions and, 13,57
ESEERCO. See Empire State Electric Energy evaluation of, 11
Research Corporation identification of, 11
Externalities. See also Internalization internalization and, 58
economic theory of, 14-15 monetary damages and, 13
as fourth stage of environmental effects, 13 monetization, 51
quantification, 51
uncertainty, 60
F Industrial Economics, Inc., 22
Federal laws, 6,67-69. See also specific laws Internalization
Federal policymaking critiques, 57-58
Index 177

impacts, 58 Shuman and Cavanaugh study, 30


underlying assumptions, 58-59

L
0
Oak Ridge National Laboratory, 15,21-22
LCA. See Life-cycle assessment ORNL. See Oak Ridge National Laboratory
Legislation. See also Federal laws; State laws and OTA report summary
regulations assumptions in cost studies, 5-6
pending legislation, 69 cost estimate findings, 3
Life-cycle assessment, 72 current laws and regulations, 6
Location specificity, 21,56 decisionmaking factors, 7-8
framework of goals and values, 5-6
M monetization, 7
Marginal effects policymaking, 6-8
average effects comparison, 55-57 report in context, 2
Marine oil spills state regulatory commissions, 6-7
Chernick and Caverhill study, 26 valuation methods, 3-5
Market valuation, 4,37,38
Marron, Donald, 23
Massachusetts Department of Public Utilities, 26 P
Minnesota/Wisconsin study, 19-20 Pace study
Mitigation cost valuation, 4,38,42-43 categorization of effects, 20
Monetization. See also Valuation methods contingent valuation, 39
approach in environmental studies, 47, 49 control cost methods, 52
critics of, 52 externalities, 58
federal policymaking and, 73 generation technology, 20-21
impacts, 51 hedonic valuation, 38
policymaking and, 7 history and quantitative results summary, 23
underlying assumptions, 51-52 interstudy comparisons, 32, 33
market valuation, 38
mitigation cost valuation, 43
N monetization of effects, 49
Natural Resources Defense Council, 15,30 size of study, 15
Nero and Associates, 29 Pace University Center for Environmental Legal
Nevada study, 19-20 Studies, 15
New source performance standards, 33 Pacific Northwest Electric Power Planning and
New York Public Service Commission, 22 Conservation Act of 1980,6,28,68,69
New York State Department of Public Service, 22 Passive-use values, 40
New York State Energy Research and Development PLC, Inc., 26
Authority, 22,23 Policy. See Federal policymaking; State laws and
New York State study regulations
advances over older studies, 7 Public utility commissions, 70-71
contingent valuation, 39 PUCs. See Public utility commissions
damage cost methods, 52-53 Purpose of studies. See Structure and purpose of
history and quantitative results summary, 22-23 studies
internalization, 57
software-based model, 22-23, 33
study in progress, 3 Q
uncertainty, 60 Qualitative criteria, 70,73
Non-use values, 39,40 Quantification. See also specific studies
Northwest Conservation Act Coalition, 15,30 approach in environmental studies, 47, 49
Northwest Power Planning Council, 28,69 critiques of, 49-50
NSPS. See New source performance standards impacts, 51
Nuclear power policymaking and, 70,73
Pace study, 23 underlying assumptions, 51-52
78 Studies of the Environmental Costs of Electricity

R methods, 15
RCG/Hagler, Bailly, Inc., 15,22 size and complexity, 15
Resource Insight, Inc. See PLC, Inc. technology specificity, 20-21
Resources for the Future, 21-22,48 Study similarities
Revealed preference methods, 53 comprehensiveness, 13
RFF. See Resources for the Future influence, 13
Secretary of Energy, 68-69 methodological discussion, 15
Study structure and purpose, 10-11, 13
Summary of report. See OTA report summary
s Technology specificity, 20-21
Shuman, Michael, 30
Shuman and Cavanagh study
control cost methods, 52 T
discount rate, 61 Tellus study
estimate of highly speculative effects, 50 categorization of effects, 20
history and quantitative results summary, 30 control cost methods, 52
interstudy comparisons, 36 control cost valuation, 24-26, 42
size of study, 15 history and quantitative results summary, 23-26
uncertainty, 60 interstudy comparisons, 33
Site specificity, 21,56
Software-based model
New York State study, 22 u
Sponsors of studies, 15 Uncertainty
Stages of environmental cost studies critiques, 59-60
damage valuation, 11, 13 impacts, 60
emissions identification, 10-11, 13 underlying assumptions, 60
externality as fourth stage, 13, 14-15 Underlying assumptions. See Assumptions
impact identification and evaluation, 11, 13 U.S. Department of Energy, 21,23. See also
State laws and regulations, 1,6-7,70 DOE/EC study
Structure and purpose of studies, 10-11, 13 Use values, 40
Studies not reviewed
Australia study, 19-20
California Energy Commission study, 19-20
v
Valuation methods. See also Control cost methods;
Nevada study, 19-20 Damage cost methods
types of, 11 contingent valuation, 4, 37, 39,41-42
Wisconsin/Minnesota study, 19-20 control cost valuation, 42
Study comparisons conversion of impacts to damages, 13
categorization differences, 32-33 determination of, 5
cost estimate uncertainty, 36 disputes over methods, 4-5
cost estimate variation, 33, 36 hedonic valuation, 4,37,38-39
domination of one effect category, 33 market valuation, 4, 37, 38
independence of estimates, 31-32 mitigation cost valuation, 4, 38,42-43
Study differences process, 3
analysts and sponsors, 15 related issues, 36
categorization of effects, 20
energy sources, 15
environmental effects, 15, 20 w
location specificity, 21 Wisconsin/Minnesota study, 19-20

* U.S. GOVERNMENT P RINTING OFFICE: 1994 - 301-804 - 814/27413